Deck 10: The Corporate Financial Structure

Question 1

Preferred shareholders are usually not enti- tled to

A) certain limited rights and privileges over shareholders of other authorized stock.
B) the right to convert their stock into common stock.
C) a preference over common stock share- holders in the distribution of profits.
D) voting preference over common stock shareholders.

Answer 1

D

Question 2

The shares provided for in a corporation's arti- cles of incorporation that may be issued to shareholders at a future date are referred to as

A) issued shares.
B) authorized shares.
C) outstanding shares.
D) treasury shares.

Answer 2

B

Question 3

The trend in modern corporate law is to require a par value of $1.00 per share or more on each share of authorized stock.

Answer 3

False

Question 4

Corporations are usually required by law to pay dividends

A) in cash.
B) quarterly.
C) from the net earnings or surplus of the corporation.
D) on the first day of every month.

Question 5

The rights and preferences of an issued class of stock may be amended by the unanimous consent of the board of directors.

Question 6

The amount of consideration received in pay- ment of stock in excess of the par value of the shares is referred to as

A) capital surplus.
B) stated capital.
C) par value consideration.
D) excess capital.

Question 7

A stock split

A) is a form of stock dividend.
B) decreases the number of outstanding shares of a corporation.
C) increases the capital of a corporation.
D) is the proportionate division of all author- ized shares of a class of stock into two or more shares.

Question 8

One advantage to debt financing over equity financing is that

A) debt financing can be repaid when the cor- poration has a surplus.
B) interest paid on debt financing may be tax deductible.
C) debt financing maintains a lower debt-to- equity ratio.
D) interest is paid on debt securities at the dis- cretion of the directors and need not be repaid if the corporation does not perform as well as expected.

Question 9

The most common method of equity financing is the issuance of common stock in exchange for cash.

Question 10

In states following the Model Business Corporation Act, the corporation must have stock issued at all times that guarantees that there are shareholders with the necessary voting rights to take any required corporate actions.

Question 11

Equity securities are loans from shareholders that must be repaid.

Question 12

In the event that no designation is made in the articles of incorporation, if there is only one class of stock authorized, that stock is considered to be common stock.

Question 13

Preferred shareholders may be granted a specific preference over common shareholders with regard to the assets of the corporation upon its dissolution.

Question 14

The instrument that represents the right to receive a fraction of a share is referred to as a

A) scrip.
B) fractional share certificate.
C) dividend certificate.
D) stock dividend.

Question 15

One advantage to the issuance of equity securi- ties over debt securities is that it maintains a lower debt-to-equity ratio for the corporation.

Question 16

If specified in the articles of incorporation, shares of stock with no voting rights may be issued.

Question 17

A bondholder is often considered to be more of a creditor than an owner.

Question 18

Securities that represent loans to the corpora-
D) Reacquisition shares