Question 1

Which method of corporate finance is used the most? Why?

Accepted Answer

The answer of Which method of corporate finance is used...

Question 2

Suppose a firm wanted to go out of business.The firm sells all its assets and pays off everything it owes to creditors.The stockholders would receive

Accepted Answer

When a firm goes out of business, they would sell all its assets and pay off all their debts to creditors. Any funds remaining after paying off the creditors would be given to the stockholders as they are the ones who have invested their money in the firm. Thus, the stockholders would receive the rest of the funds after everyone who has a claim against the firm is paid.

Question 3

A legal claim to a percentage of a company's future profits and assets is known as a

Accepted Answer

A share of stock represents ownership in a company and entitles the owner to a percentage of the company's future profits and assets. Bonds represent a form of debt issued by a company, and dividends represent payments made to shareholders from a company's profits. Random walk is a term used in finance to describe unpredictable movements in the stock market.

Question 4

Bonds are

Accepted Answer

Bonds are essentially loans that the issuer (usually a corporation or government) borrows from investors. The issuer promises to pay back the principal amount plus interest over a set period of time. Therefore, bonds are promises to repay loans.

Question 5

A long-term loan that is given to a firm is known as a

Accepted Answer

A long-term loan given to a firm is known as a bond. A share of stock represents equity ownership in a company, not a loan. Dividend is the payment made to shareholders from a company’s profits. Random walk is a concept related to financial markets and the unpredictable movement of stock prices.

Question 6

When a person buys stock in a company,that person is buying ________,but when a person buys a bond in a company,that person is ________ the company.

Accepted Answer

When a person buys stock, they are purchasing a share of ownership in the company. When they buy a bond, they are lending money to the company, which the company promises to repay with interest at a future date.

Question 7

If you want to vote for the management of the corporation,you should buy

Accepted Answer

Common stock holders have the right to vote for the board of directors and other important decisions related to the management of the corporation. Preferred stock holders do not have voting rights in most cases. Bonds are debt securities and do not give the holder any ownership or voting rights in the corporation.

Question 8

What would happen if a corporation goes out of business?

Accepted Answer

The answer of What would happen if a corporation goes...

Question 9

When a corporation uses profits to pay for the purchase of new capital equipment,this is know as

Accepted Answer

Reinvestment refers to the practice in which a company uses a portion of its profits to buy additional capital resources that can help increase the company's future income. Capital resources are things like equipment, property or upgrades to existing assets, and are intended to increase the production capacity or reduce operating costs. Reinvestment is usually a good sign for investors as it shows that the company is focused on growth and profitability over the long-term. Choice B) Coupon payment refers to the regular interest rate that is paid out to bondholders. Choice C) Dividend is a payout that companies make to shareholders as a portion of their profits. Choice D) Collusion refers to an illegal practice where two or more companies agree to coordinate their actions to gain an unfair advantage over competitors.

Question 10

Stocks are

Accepted Answer

Stocks represent shares of ownership in a corporation.

Question 11

A legal claim entitling the owner of the claim to fixed annual payments and a lump-sum payment is called a(n)

Accepted Answer

This description matches the characteristics of a bond. A bond is a type of debt security where the issuer promises to pay the bondholder a fixed interest rate (the annual payments) for a set period of time, after which the face value of the bond (the lump-sum payment) is repaid.

Question 12

A company raises funds by selling 5 million shares of common stock to 5,000 shareholders and $1 million bonds to 1,000 bondholders.The number of individuals who vote for the company's board of directors is

Accepted Answer

The shareholders are the ones who have the right to vote for the board of directors, so only the 5,000 shareholders will be the ones to vote. The bondholders do not have voting rights for the board of directors.

Question 13

Suppose you own $15,000 of personal property,$5,000 of stock in ABC Corporation,a $1,000 certificate of deposit,and $10,000 of government bonds.If ABC goes bankrupt,the most you could lose is

Accepted Answer

In the event of ABC Corporation going bankrupt, the maximum financial loss you would incur is the total value of your investment in the company, which is $5,000. Your other assets (personal property, certificate of deposit, and government bonds) are not directly affected by the bankruptcy of ABC Corporation.

Question 14

If a corporation fails,the first recipients of funds that may remain are

Accepted Answer

Bondholders have priority over stockholders in receiving remaining funds in the event of a corporation's failure.

Question 15

If a corporation fails,the last recipients of funds that may remain are

Accepted Answer

Common stockholders are the last in line to receive any remaining funds after a corporation fails, following the payment of debts, obligations to bondholders, preferred stockholders, and taxes.

Question 16

The random walk theory says that

Accepted Answer

The random walk theory states that successive stock prices are independent of each other, meaning that the future price of a stock cannot be predicted based on its past price movements.

Question 17

Suppose that you decide to purchase either stocks or bonds of a particular corporation and you also prefer to receive some returns from the securities every year.Which should you buy - stocks or bonds? Why?

Accepted Answer

The answer of Suppose that you decide to purchase either...

Question 18

According to the random walk theory,

Accepted Answer

The random walk theory states that successive prices of a stock are independent of each other. Therefore, choice B is the best option. Choices A, C, and D are incorrect as they suggest some form of predictability or correlation between stock prices, which contradicts the random walk theory.

Question 19

Describe and explain the three principle methods of financing used by corporations.

Accepted Answer

The answer of Describe and explain the three principle methods...

Question 20

When Patricia sells her General Motors common stock at the same time that Brian purchases the same amount of General Motors stock from another party,General Motors receives

Accepted Answer

The answer of When Patricia sells her General Motors common...

Quiz 8: Rents, profits, and the Financial Environment of Business