Question 1

Mega Computer issued stock with a face value of one cent and then sold the shares to the public for $20.00 each. Ted bought 10 shares at that price. Today, Ted sold his shares to David for $25.00 each. What is the par value of the stock?

Accepted Answer

The par value of the stock is the face value of each share which, in this case, is one cent. The fact that Mega Computer sold the shares to the public for $20.00 each and that Ted bought them at that price does not affect the par value. Similarly, the fact that Ted sold his shares to David for $25.00 each is irrelevant to the par value. Therefore, the correct answer is E) $0.01.

Question 2

The mix of debt and equity funding that a firm uses is called its

Accepted Answer

Capital structure refers to the combination of debt and equity financing that a company uses to fund its operations and investments. It is often seen as a critical decision for a company as it influences both its cost of capital and its ability to raise capital in the future.

Question 3

Dennis can compute the market capitalization of the company he works for by

Accepted Answer

Market capitalization is calculated by multiplying the market price of one share of the company's stock by the total number of shares outstanding. This represents the total value of the company as perceived by the market. The other options do not accurately represent market capitalization.

Question 4

Mega Computer's financial statements show 1000 shares of common stock with a par value of $10 000, retained earnings of $20 000, additional paid in capital of $10 000, and long-term debt of $30 000. What is the book value of a share of stock?

Accepted Answer

The book value of a share of stock is calculated by adding the common stock's par value, additional paid-in capital, and retained earnings, then dividing by the number of shares. Here, ($10,000 + $10,000 + $20,000) / 1000 = $40.00 per share. Long-term debt is not included in this calculation.

Question 5

Mega Computer's financial statements show 1000 shares of common stock with a par value of $10 000, retained earnings of $20 000, additional paid in capital of $10 000, and long-term debt of $30 000. What is the market value of a share of Mega's stock?

Accepted Answer

The market value of a share of stock cannot be determined from the financial statement figures provided (par value, retained earnings, additional paid-in capital, and long-term debt) as these figures do not directly relate to the current market price of a share. Market value is determined by the stock market based on supply and demand, investor perceptions, and other external factors.

Question 6

What is the meaning of "par value" when discussing common stock?

Accepted Answer

"Par value" refers to the face value of a share of common stock, which is typically quite small, such as one cent or one dollar. It is often used for legal purposes and does not necessarily reflect the current market value of the stock.

Question 7

Which of the following is correct?

Accepted Answer

Market capitalization is calculated by multiplying the number of outstanding shares by the market value of each share. This is a commonly used method for valuing a company in the stock market. The other options are incorrect. The par value of stock is not a good indicator of its real value, as it is often set arbitrarily low and has no relation to the stock's market price. The market value of a stock can be influenced by subjective factors such as rumors and stockbroker recommendations, in addition to objective financial considerations. The book value of a stock is calculated by dividing stockholders' equity by the number of outstanding shares, not the current market price.

Question 8

Regarding the issue of investor relations, it is correct to say that

Accepted Answer

Investor relations may include activities such as inviting financial analysts to visit the firm's operating sites, among other things. Options A, C, D, and E are incorrect because investor relations can have a significant impact on a firm's stock price, it has been around for much longer than the late 1980s, it is crucial for a firm's success, and it targets both individual buyers and financial analysts.

Question 9

Suppose you were interested in purchasing a printing company. This might be an attractive target if the ________ value of the stock was less than the ________ value.

Accepted Answer

The answer of Suppose you were interested in purchasing a...

Question 10

Corporation B had sales revenue last year of $20 million, operating expenses of $16 million, and net profit of $4 million. There are 2 million shares of stock oustanding. What is the par value of the company's stock?

Accepted Answer

The par value of a company's stock is a nominal value assigned to the shares of stock and is determined at the time the stock is issued. It is not calculated from sales revenue, operating expenses, net profit, or the number of shares outstanding.

Question 11

Preferred stock with a $100 par value and a 6 percent dividend is currently trading on the market at $110 per share. What is the amount of the dividend the holder is entitled to receive each year?

Accepted Answer

The holder is entitled to receive a 6% dividend on the par value of the stock, which is $100. Therefore, the annual dividend is 6% of $100, or $6 per share.

Question 12

From a company's perspective, which of the following is the most conservative mix of long-term funding?

Accepted Answer

C) 100% equity is the most conservative mix of long-term funding from a company's perspective because it does not involve taking on debt, thus avoiding interest payments and reducing financial risk.

Question 13

Which of the following is correct with regard to market capitalization?

Accepted Answer

This statement is correct according to the textbook. In Canada, financial institutions and resource companies tend to have the highest market capitalizations. The other statements are incorrect. A) Market capitalization can fluctuate greatly from year to year. B) Market capitalization is computed by multiplying the number of outstanding shares by the market price per share, not by dividing owners' equity. D) Market capitalization can provide valuable information about a company's size and value to investors.

Question 14

Preferred stock with a $100 par value and a 5 percent dividend is currently trading on the market at $90 per share. What is the amount of the dividend the holder is entitled to receive each year on each share?

Accepted Answer

The dividend the holder is entitled to receive each year on each share is the percentage dividend rate multiplied by the par value of the stock, which in this case is 5% of $100 = $5. Therefore, the answer is D.

Question 15

Mega Computer issued stock with a face value of one cent and then sold the shares to the public for $20.00 each. Ted bought 10 shares at that price. Today, Ted sold his shares to David for $25.00 each. What are Ted's capital gains?

Accepted Answer

Ted's capital gains are calculated by subtracting his original purchase price from the sale price:

$25.00 - $20.00 = $5.00 per share

Since Ted bought 10 shares, his total capital gains are:

$5.00 x 10 = $50.00

Question 16

All of the following are features of debt financing except

Accepted Answer

The answer of All of the following are features of...

Question 17

Mega Computer issued stock with a face value of one cent and then sold the shares to the public for $20.00 each. Ted bought 10 shares at that price. Today, Ted sold his shares to David for $25.00 each. What is the market value of the stock?

Accepted Answer

The face value of the stock is not relevant to the market value. The market value is determined by what the stock is currently selling for. Ted purchased his shares for $20 each, and then sold them to David for $25 each. This means that the market value of the stock is $25 per share. Therefore, the correct answer is B) $25.00.

Question 18

Rosella is financial manager who is comparing the effects of debt and equity financing. She finds that

Accepted Answer

Debt financing involves regular payments of interest and principal, which make a regular claim on a company's income. On the other hand, equity financing does not involve such regular payments and only gives investors a share in the company's future profits. Therefore, option B is the correct choice. The other options are either incorrect or incomplete.

Question 19

The book value of a company's common stock is determined by

Accepted Answer

The book value of a company's common stock is determined by dividing total shareholders' equity by the number of outstanding shares. This calculation provides an estimate of the value of the company's assets that would be distributed to shareholders if the company were to liquidate.

Question 20

Which of the following represents a stock's real value?

Accepted Answer

The answer of Which of the following represents a stock's...

Quiz 15: Finacial Decisions and Risk Management