Which of the following is not a form of compensation that selling stockholders could receive?
A business combination of two or more companies in which the resulting firm maintains the identity of the acquiring company is defined as a: (Points : 5)
consolidation.
holding company.
conglomerate.
merger.
8. An operating lease: (Points : 5)
has a lease term equal to 75% or more of the estimated property.
is usually short-term and is often cancelable at the option of the lessee.
must show up on the balance sheet.
none of these.
9. Buchanan Corp. is refunding $10 million worth of 10% debt. The new bonds will be issued for 8%. The corporation’s tax rate is 35%. The call premium is 9%. What is the net cost of the call premium? (Points : 5)
$390,000
$1,080,000
$585,000
$702,000
10. Which of the following types of mergers is most likely to lead to diversification benefits? (Points : 5)
Horizontal merger
Vertical merger
Tax free exchange
Conglomerate
11. Which of the following is not a form of compensation that selling stockholders could receive? (Points : 5)
Stock
Cash
Stock Options
Fixed Income Securities
12. The “call” provision on some bonds allows: (Points : 5)
the bondholder to redeem the bond earlier than maturity, but usually involves a call premium.
the corporation to request additional capital contributions from the bondholder.
the corporation to redeem the bonds earlier than maturity but usually for a premium over the par value.
the bondholder to convert the bond into preferred stock.
13. The higher the tax rate, the ______ the net underwriting cost on the new bond issue. (Points : 5)
higher
lower
higher or lower
substantially higher
14. Which one of these conditions must be met for a lease to qualify as a capital lease? (Points : 5)
The lease contains a bargain purchase price at the end of the lease.
The lease must have a value of at least $10 million.
The lease must have a life of 10 years.
All of these.
15. Which of the following bonds offers the most security to the bondholder? (Points : 5)
Junior mortgage bonds
Senior mortgage bonds
Debenture bond
Income bond
16. A call provision, which allows the corporation to force an early maturity on a bond issue, usually contains all but which of the following characteristics? (Points : 5)
Most bonds must be outstanding at least 5 years before being called.
After the call date, the call premium tends to decline over time.
The provision typically calls for debt conversion into common stock.
The corporation will pay a premium over par for the bonds.
17. The rising ratio of divestitures to new acquisitions which occurred in the past suggests that: (Points : 5)
poison pills are no longer effective as a defense against takeovers.
too much diversification strained the operating capabilities of many firms.
the portfolio effect has been a highly successful method of reducing risk.
multinational firms are increasingly considered highly risky investments.
18. Bond refunding occurs when: (Points : 5)
interest rates in the market are sufficiently less than the coupon rate on the old bond.
interest rates in the market have risen over the coupon rates on the old bond.
the price of the old bond is less than par.
the sinking fund has accumulated enough money to retire the bond issue.
19. The main cause for the increase in corporate debt in America is: (Points : 5)
rapid business expansion.
inflationary impacts.
inadequate internally-raised funds.
All of these.
20. Floating rate bonds are most likely to be popular with investors when it is anticipated that: (Points : 5)
interest rates will stay the same.
interest rates will go up.
interest rates will go down.
short-term interest rates will be higher than long-term interest rates.
