I’m working on a finance practice test / quiz and need guidance to help me understand better.I would like to have the answers of posted questions. Thank you………………………………………………….Which of the following statement(s) is (are) correct?An equity issue sold to the firm’s existing stockholders is called a rights offer.
The first public equity issue that is made by a company is referred to as an initial public offering.
A group of investment bankers who pool their efforts to underwrite a security are known as a conglomerate.
In a best efforts offering the investment banker makes their money primarily by earning the spread between the buying and offering price
Group of answer choicesI and II, and IIIIII and IVII, III and IVAll of aboveI and IIWhich of the following statement(s) is (are) correct?The key difference between a negotiated offer and a competitive offer is that the issuing firm can offer its securities to the highest bidder in a competitive bid but in a negotiated bid only one investment banker is used.
Venture capitalists are intermediaries that raise funds from outside investors.They play an active role in overseeing, advising, and monitoring the companies in which they invest.
Empirical evidence suggests that upon announcement of a new equity issue, current stock prices generally drop, perhaps because the new issue reflects management’s view that common stock is currently overvalued.
Assuming everything else is constant, when a stock goes ex-rights its price should increase since the corporation no longer has the right to force the stockholder to convert.
Group of answer choicesI and II and III onlyAll of aboveI and II and IVI and II onlyII, III and IV onlyA warrant gives its owner the right to purchase three shares of common stock at an exercise price of $50 per share. The current market price of the stock is $60. What is the minimum value of the warrant?Group of answer choices$30$50$40$20$10Which of the following statement(s) is (are) correct?The flow-to-equity (FTE) approach in capital budgeting is defined to be the discounting of the levered cash flows to the equity holders for a project at the required return on equity.
The APV method is comprises the all equity NPV of a project and the NPV of financing effects. The four side effects are cost of issuing new securities, cost of financial distress, tax subsidy of debt and other subsidies to debt financing.
The APV method to value a project should be used when the project’s level of debt is known over the life of the project.
Use FTE or WACC if the firm’s target debt-to-value ratio applies to the project over its life.
Group of answer choicesII and III onlyI and IV onlyAll of above.II and IV onlyI and III onlyWhich of the following statement(s) is (are) correct?The corporate document that sets forth the business purpose of a firm is the articles of incorporation.
The rules by which corporations govern themselves are called bylaws.
A business created as a distinct legal entity composed of one or more individuals or entities is called a sole proprietorship.
A stakeholder is any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of the firm.
Group of answer choicesI, II, and IVII and IVI, II, and IIII and IIIII and IVThe common stock of EFCityU, Inc. is currently priced at $50 per share. One year from now, the stock price is expected to be either $45 or $55 a share. The risk-free rate of return is 5%. What is the value of one call option on EFCityU stock with an exercise price of $52? Group of answer choices$0.714$0.704$0.724$0.694$0.734You sold a put contract on EFCityU stock at an option price of $.60. The option had an exercise price of $31.
The option was exercised. Today, EFCityU stock is selling for $29 a share. What is your total profit or loss on all of your transactions related to EFCityU stock assuming that you close out your positions in this stock today? Ignore transaction costs and taxes.Group of answer choices$200$0$140-$200-$140Which of the following statement(s) about MM theory is (are) correct?MM Proposition I with no tax supports the argument that it is completely irrelevant how a firm arranges its finances.
Bryan invested in Bryco, Inc. stock when the firm was financed solely with equity. The firm is now utilizing debt in its capital structure. To unlever his position, Bryan needs to create a personal debt-equity ratio that is equal to exactly 50% of the debt-equity ratio of the firm.
In an EPS-EBI graphical relationship, the debt ray and equity ray cross. At this point the equity and debt are at breakeven in EPS but above this point debt increases EPS via leverage and decreases EPS below this point.
MM Proposition I with taxes supports the theory that there is a positive linear relationship between the amount of debt in a levered firm and its value.
Group of answer choicesI, III, and IVI and IIIII and IVII, III, and IVAll of aboveThe observed empirical fact that stocks attract particular investors based on the firm’s dividend policy and the resulting tax impact on investors is called the efficient markets hypothesis.
The date on which the firm mails out its declared dividends is called the ex-dividend date.
In a reverse stock split the number of shares outstanding increases and owners’ equity decreases.
The ability of shareholders to undo the dividend policy of the firm and create an alternative dividend payment policy via reinvesting dividends or selling shares of stock is called homemade leverage.
Group of answer choicesIII and IV onlyNone of aboveI onlyI and IV onlyII and III onlyThe duration of a 16 year zero coupon bond priced at $781.70 is: Group of answer choices16 yearscannot determine without the interest rate17.74 years2.74 yearsNone of the aboveAccording to tradeoff theory, which of the following statement(s) about capital structure is (are) correct?The optimal capital structure has been achieved when the debt-equity ratio selected results in the lowest possible weighted average cost of capital.
The optimal capital structure will tend to include more debt for firms with lower probability of financial distress.
The optimal capital structure of a firm will vary over time as taxes and market conditions change.
In general, the capital structures used by U.S. firms vary significantly across industries.
Group of answer choicesII, III, and IVII and IIIAll of aboveI and III, II, and III
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