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PROBLEM SET 12 ECO389 - SUMMER 2017 Corporate Finance Instructor: Ramiro Malaga Due date: Extended to Friday, 11th August 2017 at 11:00 p.m. Please answer it on Blackboard. If you face any difficulty in submitting your problem set, please send the answers by email to ramiro.malagaortega@stonybrook.edu before the deadline. Problem 1 Recently, which of the following sources of funds has played the greatest role in the financing of U.S. nonfinancial firms? A. B. C. D. internal funds net equity issues net borrowing All of the sources were approximately the same Problem 2 A firm has $100 million in current liabilities, $200 million in total long-term liabilities, $300 million in stockholders' equity, and total assets of $600 million. Calculate the debt ratio for the firm. A. B. C. D. 40% 20% 50% 33% Problem 3 Which of the following is NOT a sensible reason for a firm to rely on internal funds? A. B. C. D. Equity issues are generally expensive. A new bond issue may drive the firm's debt ratio too high. Financial markets interpret the issuance of equity unfavorably. All of these are sensible reasons to rely on internal funds. Problem 4 Consider the aggregate balance sheet for manufacturing corporations in the U.S. Which of the following sources of financing plays the smallest role? A. B. C. D. Current liabilities Long-term debt Stockholders' equity Each of the sources plays an equal role. Problem 5 As a provider of funds to a corporation, owning which of the following corporate securities will give you the most control rights? A. B. C. D. Short-term bank loan Long-term bond Preferred stock Common stock 1 Problem 6 Typically, the book value of shareholders' equity equals: A. B. C. D. Total assets minus current liabilities. Total assets minus net worth. The sum of preferred stock, debt, and the par value of equity. The sum of the par value of common stock, additional paid-in capital, and accumulated retained earnings. Problem 7 As a provider of funds to a corporation, owning which of the following corporate securities will generally give you the strongest rights to cash flow? A. B. C. D. short-term bank loan long-term bond preferred stock common stock Problem 8 The market value of equity equals: A. B. C. D. (Market price) (Market price) (Market price) (Par value) (# (# (# (# of of shares outstanding) of treasury shares) of authorized shares) shares outstanding) Problem 9 Shares held by investors are known as: A. B. C. D. issued but not outstanding issued and outstanding authorized shares treasury stock Problem 10 In the United equities? A. B. C. D. Sates, who holds the smallest portion of corporate Households Pension funds Mutual funds Insurance companies Problem 11 If you own 1,000 shares of common stock of a firm and there are five directors being elected, what is the maximum number of votes you can cast for a particular director under cumulative voting? A. B. C. D. 5,000 1,000 200 5 Problem 12 If you own 1,000 shares of common stock of a firm and there are five directors being elected, what is the maximum number of votes you can cast for a particular director under majority voting? A. B. C. D. 5,000 1,000 200 5 2 Problem 13 A modification to the company charter that requires 75% shareholder approval for a merger is called a: A. B. C. D. Majority voting amendment. Cumulative voting amendment. Proxy voting amendment. Supermajority amendment. Problem 14 In the United States the premium that an investor needed to pay to gain voting control is: A. B. C. D. 29%. 36%. 2%. 32%. Problem 15 Exploitation called: A. B. C. D. of minority shareholders by majority shareholders is A reverse stock split. Tunneling. Financial engineering. Proxy fighting. Problem 16 Preference in position among creditors when it comes to repayment is called: A. B. C. D. Seniority. Securitization. Time preference. Absolute return. Problem 17 Suppose a firm sets aside assets to protect particular investors. These assets are called: A. B. C. D. Repurchased shares. Senior debt. Subordinated debt. Collateral. Problem 18 If a bond is junior or subordinated, it: A. B. C. D. Has a higher priority status than specified creditors. Has been issued because the company is in default. Must give preference to senior creditors in the event of default. Is secondary to equity. Problem 19 A corporate bond that can be exchanged for a fixed number of shares of stock is called a: A. B. C. D. Callable bond. Debenture. Convertible bond. Warrant. 3 Problem 20 When new securities are sold by a firm, it is termed a: A. B. C. D. Primary market transaction. Secondary market transaction. OTC market transaction. Open market operations. 4