Deck 26: Legal Aspects of Corporate Finance

Question 1

When a value is specified on a stock certificate, it is said to be the par value.

Answer 1

True

Question 2

Article 8 of the Uniform Commercial Code governs certificated securities, uncertificated securities, registration requirements, transfer, purchase, and other specifics of securities.

Answer 2

True

Question 3

Bonds give away ownership interests.

Answer 3

False

Question 4

The law does not require a corporation to give out a specific type of dividend.

Question 5

Fun Sports Inc., a sports equipment manufacturer, decided to sell bonds in the market each worth $1,000 at an interest of 8% per annum in order to raise funds. This percentage of interest that offered by company Fun Sports Inc. is known as the _____.

A) plowback rate
B) stock rate
C) equity share
D) coupon rate
E) venture capital rate

Question 6

Floating Cubes Inc., a large furniture corporation, decided to raise funds through bond. It sold each bond at $1,000 per bond and each bond would have a value of $1,000 at the end of its maturity period. Which of the following is being used by Floating Cubes Inc. to raise funds?

A) A municipal bond
B) A treasury bond
C) A zero coupon bond
D) A junk bond
E) A floating rate bond

Question 7

Companies prefer to obtain finance through debt rather than by selling stock because the total costs of selling stock are higher than financing debt.

Question 8

The face value of a bond is also known as the coupon rate.

Question 9

In order to make distributions, the corporation's assets must be greater than or equal to its liabilities and liquidation preferences on senior equity.

Question 10

Redeemed stock is also known as no-par stock.

Question 11

Par value is also known as the face value of a stock.

Question 12

_____is the acquisition of another company using a significant amount of borrowed money to pay for the acquisition.

A) Venture capital investment
B) Leveraged buyout
C) Sequestration
D) Plowback
E) Angel investment

Question 13

A corporation is not obliged to issue all the authorized shares.

Question 14

Stuart wanted to set up a small steel manufacturing plant. In order to raise funds, he approached his affluent uncle, Tom. Tom agreed to finance the plant with his own money in exchange for an ownership with interest. It can be said that Tom is an) _____.

A) venture capitalist
B) angel investor
C) bondholder
D) equity shareholder
E) stockholder

Question 15

A stock purchaser may purchase stock with something other than cash, such as property.

Question 16

Stock sales are not limited to initial public offering.

Question 17

In the context of corporate finance, face value is:

A) a doctrine holding that certain legal consequences attach to an attempt by a corporation to carry out acts that are outside its lawful powers.
B) the amount that a corporation pays a bondholder at the bond's maturity.
C) the minimum number of shareholders needed to have a valid vote.
D) the lawsuit brought on behalf of the corporation by a shareholder when the directors refuse to act.
E) a situation where one person sits on the board of directors of two different companies.

Question 18

Private equity is not ideal for established firms because of the high cost to them, both monetarily and in terms of potential loss of control.

Question 19

Stockholders have priority over bondholders in the event of bankruptcy because stockholders are also owners of the company.

Question 20

Zero coupons pay the face value at maturity.

Question 21

Mixed Inc., a cement manufacturer, issued $5,000 of common stock to their attorney for legal services involving the formation of the company. In reality, the services were worth only $1,000. It can be said that the attorney has been issued a _____ and would be liable to the corporation for the $4,000 difference.

A) zero coupon stock
B) watered stock
C) treasury stock
D) municipal stock
E) junk stock

Question 22

Which of the following is true of dividend payments?

A) Dividends have to be paid to shareholders even if paying them makes the company insolvent.
B) A company cannot, in any case, distribute assets in the form of cash or property from capital surplus.
C) A treasurer is bound to hand out cash to the shareholders if the board of directors declares a dividend payable on the date of the board meeting.
D) A company can revoke a share dividend as long as the shares have not been issued.
E) Directors have the discretion to declare and distribute dividends in excess of those allowed by the articles of incorporation without being liable to the corporation.

Question 23

Which of the following are sold to the public in the first place and simply retained by the corporation?

A) A zero coupon bond
B) A common share
C) A treasury share
D) A preference share
E) A plowback earning

Question 24

_____ has elements of both equity and debt.

A) Preferred stocks
B) Common stocks
C) Treasury bonds
D) Municipal bonds
E) Treasury shares

Question 25

The term _____ describes the sum of the par value of the issued par value stock and the consideration received or stated value) for the no-par stock.

A) venture capital
B) authorized capital
C) preference capital
D) stated capital
E) bond capital

Question 26

What is meant by plowback? What are the advantages of plowback as a source of new funds?

Question 27

A stock split:

A) results in the dilution of the existing shareholders' interest.
B) results in a change in the par and stated value of the stock.
C) leads to a change in the assets of the company.
D) leads to a change in the surplus of the company.
E) seldom requires the approval of existing shareholders.

Question 28

What is a dividend?

A) It is the face value of a stock.
B) It is the first time a corporation offers stock for sale to the public.
C) It is the term that describes the sum of the par value of the issued par value stock and the consideration received for the no-par stock.
D) It is an inflated consideration that is in fact less than the par value of a stock.
E) It is a share of the corporation's profits.

Question 29

Which of the following has an inflated consideration that is in fact less than the par value?

A) A watered stock
B) A dividend
C) A zero coupon bond
D) A junk bond
E) A treasury stock

Question 30

Willy holds 1,000 preferred shares of Fun Games Inc. Hence, she would have a right to:

A) express her ownership interest in the corporation by voting.
B) receive interest over her investment prior to its distribution to the bondholders.
C) receive the assets of the company on liquidation prior to the common stockholders.
D) ratable participation in the earnings of the corporation.
E) ratable participation in the distribution of net assets of Fun Games Inc. on liquidation.

Question 31

According to the changes in the Revised Model Business Corporation Act, the term _____ refers to any transfer of money or property to shareholders.

A) distribution
B) dividend
C) delivery
D) division
E) stock-split

Question 32

What is meant by common stock? State the various rights enjoyed by common stockholders.