Question
1.Acompanylookingtoissuedebtinsteadofequitymaywanttoconsiderdebtduetofavorabletaxbenefits. a.True b.False 2.Debtfinancingtypicallyhasahighercostofcapitalthanequity. a.True b.False 3.Smallandmedium-sizecompaniestypicallyhavemoredifficultyattractingequitycapitalthandebtcapital. a.True b.False 4.Anadvantageofdebtfinancingisthatitdecreasesfinancialleverage. a.True b.False 5.Debenturebondsareonlyissuedbycompanieswithanexcellentcreditrating. a.True b.False 6.Whenacompanysellsitsbondsatlessthanfacevalue,theeffectiveinterestrateis a.lowerthantheyieldrate. b.higherthanthecontractinterestrate. c.lowerthanthenominalrate. d.higherthanthemarketinterestrate 7.Whenthemarketrateofinterestislessthanthecontractrateofinterest,thebondswillsell a.belowfacevalue. b.atadiscount. c.behindparvalue. d.atapremium
1.Acompanylookingtoissuedebtinsteadofequitymaywanttoconsiderdebtduetofavorabletaxbenefits.
a.True
b.False
2.Debtfinancingtypicallyhasahighercostofcapitalthanequity.
a.True
b.False
3.Smallandmedium-sizecompaniestypicallyhavemoredifficultyattractingequitycapitalthandebtcapital.
a.True
b.False
4.Anadvantageofdebtfinancingisthatitdecreasesfinancialleverage.
a.True
b.False
5.Debenturebondsareonlyissuedbycompanieswithanexcellentcreditrating.
a.True
b.False
6.Whenacompanysellsitsbondsatlessthanfacevalue,theeffectiveinterestrateis a.lowerthantheyieldrate.
b.higherthanthecontractinterestrate.
c.lowerthanthenominalrate.
d.higherthanthemarketinterestrate
7.Whenthemarketrateofinterestislessthanthecontractrateofinterest,thebondswillsell
a.belowfacevalue.
b.atadiscount.
c.behindparvalue.
d.atapremium
8.Whenthemarketrateofinterestisequaltothecontractrateofinterest,thebondsshouldsellat a.apremium.
b.parvalue.
c.thecallprice.
d.theconversionprice.
9. Theproperprocedureforcomputingtheissuancepriceofabondincludesaddingthe a.maturityvalueofthebondstotheaccruedinterest. b.maturityvalueofthebondstothepresentvalueoftheinterestpayments. c.presentvalueoftheprincipaltotheaccruedinterest. d.presentvalueoftheprincipaltothepresentvalueoftheinterestpayments.
10. Whenisinterestexpensemorethaninterestpaid?
a.whenbondsaresoldatapremium
b.whenbondsaresoldatamargin
c.whenbondsaresoldatadiscount
d.whenbondsaresoldatayield
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