Question 1

Which statement describes the major drawback to the use of debt financing?

Accepted Answer

Debt financing increases a company's financial risk because it commits the company to fixed interest payments, regardless of its financial performance. Failure to meet these obligations can lead to financial distress or bankruptcy.

Question 2

Which of the following statements about preferred stock is true?

Accepted Answer

Preferred stock typically provides a fixed dividend, which is paid out before any dividends are given to common stockholders.

Question 3

The funds that are reinvested in the firm out of profits and after dividends are paid are called:

Accepted Answer

Retained earnings are the portion of a company's profits that are kept or retained within the business instead of being paid out to shareholders as dividends. These funds are often reinvested into the company for growth, debt reduction, or other purposes.

Question 4

Three important forms of long-term (capital) expenditures are:

Accepted Answer

Options A, B, and C primarily list short-term financing sources, while D includes a mix of short and long-term. Option E lists term loans, mortgage loans, and bonds, all of which are common forms of long-term capital expenditures used by companies to finance their operations, investments, or expansions over a longer period.

Question 5

Business loans available from commercial banks with terms generally five to twelve years and secured or unsecured are called _____ loans.

Accepted Answer

Term loans are the type of loans offered by commercial banks that can be either secured or unsecured, with repayment periods typically ranging from five to twelve years.

Question 6

Long-term debts (liabilities) for corporations and governments are called:

Accepted Answer

Long-term debts for corporations and governments are typically issued in the form of bonds. Bonds are a form of borrowing where the issuer promises to pay back the principal along with interest at a specified future date.

Question 7

_____ stock is a security that represents an ownership interest in a corporation and has voting rights.

Accepted Answer

Common stock represents ownership in a corporation and carries voting rights.

Question 8

Payments in the form of more stock to existing stockholders are called:

Accepted Answer

Stock dividends are payments made in the form of additional shares rather than cash, given to existing shareholders. This increases the number of shares held by each shareholder without them having to invest more money.

Question 9

Term loans:

Accepted Answer

Term loans can come from various sources including commercial banks and insurance companies, have flexible repayment schedules, are used for capital expenditures with maturities over a year, and can be either secured or unsecured, making all the provided statements correct.

Question 10

A(n) _____ loan is a long-term loan using real estate or other assets as collateral.

Accepted Answer

A mortgage loan is specifically designed as a long-term loan where real estate or other assets are used as collateral. This is the common practice for financing the purchase of a property or real estate.

Question 11

Esselte is a Swedish-based company that sells office supplies.It went public when it was founded, and it remained public until 2002 when it was taken private.Now that Esselte is private, it:

Accepted Answer

When a company goes private, it no longer sells stock to the public, which means it does not have to adhere to the same reporting requirements and can focus on long-term goals without the pressure of quarterly earnings reports.

Question 12

Long-term debt would be used to:

Accepted Answer

Long-term debt is typically used for significant investments or purchases that benefit a business over several years, such as acquiring new facilities, expanding operations, or purchasing major equipment. Paying employees' salaries, buying tablecloths, replacing broken glass, and providing cash discounts are all operational expenses or minor capital expenditures that are usually covered by short-term funding sources or operational cash flow, not long-term debt.

Question 13

Dividends are:

Accepted Answer

Dividends are payments made to shareholders out of a company's earnings, reflecting the company's financial health and profit distribution policy. They are not guaranteed, nor are they considered loans or annual payments specific to bonds.

Question 14

Which of the following statements does NOT describe an advantage inherent in equity financing?

Accepted Answer

Interest tax deductibility is an advantage of debt financing, not equity financing. Equity financing involves raising capital through selling shares, and there's no interest to be paid on equity, hence no tax deduction for interest payments.

Question 15

_____ invest in new businesses in return for part of the ownership, sometimes as much as 60 percent.

Accepted Answer

Venture capitalists are investors who provide capital to startups or small companies looking to expand, in exchange for equity or part ownership in the company.

Question 16

Private individual investors who sometimes provide venture capital to small firms in need of equity capital are called:

Accepted Answer

Angel investors are private individuals who provide capital to start-ups or small firms in exchange for ownership equity or convertible debt. They are often affluent individuals looking to invest in promising companies at their early stages.

Question 17

Tracy Lefteroff is the global managing partner for PricewaterhouseCoopers.She said that her company is eager to invest in newly created biotech companies because the U.S.has an aging population that will need new medications and treatments.What kind of equity capital would Lefteroff be likely to provide?

Accepted Answer

Venture capital is the type of equity capital typically provided to newly created or early-stage companies with high growth potential, such as those in the biotech sector. PricewaterhouseCoopers, through its interest in investing in these companies, would likely offer venture capital to support their development and commercialization of new medications and treatments.

Question 18

A secured Internet service provider would be very likely to attract the attention of _____ because it is in a high-tech industry with lots of opportunity for rapid growth.

Accepted Answer

Venture capitalists are investors who provide capital to startups and small businesses with the potential for long-term growth, which is often found in high-tech industries.

Question 19

Which of the following statements about preferred stock is true?

Accepted Answer

The answer of Which of the following statements about preferred...

Question 20

When a firm goes public, it must reveal such information as:

Accepted Answer

When a firm goes public, it is required to disclose a wide range of information to potential investors, including financing plans, product details, financial data, and operating data. This is to ensure transparency and provide investors with the necessary information to make informed decisions.

Quiz 16: Understanding Financial Management and Securities Markets

Which statement describes the major drawback to the use of debt financing?

Which of the following statements about preferred stock is true?

The funds that are reinvested in the firm out of profits and after dividends are paid are called:

Three important forms of long-term (capital) expenditures are:

Business loans available from commercial banks with terms generally five to twelve years and secured or unsecured are called _____ loans.

Long-term debts (liabilities) for corporations and governments are called:

_____ stock is a security that represents an ownership interest in a corporation and has voting rights.

Payments in the form of more stock to existing stockholders are called:

Term loans:

A(n) _____ loan is a long-term loan using real estate or other assets as collateral.

Esselte is a Swedish-based company that sells office supplies.It went public when it was founded, and it remained public until 2002 when it was taken private.Now that Esselte is private, it:

Long-term debt would be used to:

Dividends are:

Which of the following statements does NOT describe an advantage inherent in equity financing?

_____ invest in new businesses in return for part of the ownership, sometimes as much as 60 percent.

Private individual investors who sometimes provide venture capital to small firms in need of equity capital are called:

A secured Internet service provider would be very likely to attract the attention of _____ because it is in a high-tech industry with lots of opportunity for rapid growth.

Which of the following statements about preferred stock is true?

When a firm goes public, it must reveal such information as: