Introduction To Corporate Financing And Governance

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Question 1

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Only a portion of the board of directors are up for election in any given year when a firm has a classified board.

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Question 2

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Shares of stock that have been issued and subsequently repurchased by the issuer are known as treasury stock.

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Question 3

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The price at which new shares are sold to investors almost always exceeds par value.The difference is entered into the company's accounts as additional paid-in capital,or capital surplus.

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Question 4

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Firms tend to issue more debt when internal funds are low.

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Question 5

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In proxy contests,outsiders compete with the firm's existing management and directors for control of the corporation.

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Question 6

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Historically,internally generated cash covers less than half of the non-financial firms' capital requirements in the U.S.

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Question 7

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The gap between internally generated cash and the cash that the company needs is called the financial deficit.

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Question 8

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Ford Motor Company and Google have issued two classes of shares with different voting rights to allow their firms to obtain fresh capital without giving up their management's controlling rights.

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Question 9

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Suppose a firm needs fresh capital,but its management does not want to give up its controlling interest.The existing shares could be labeled Class A,and then Class B shares with limited voting rights could be issued to outside investors.

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Question 10

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If an incompetent management team controls a large block of votes,it may use these votes to stay in control.

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Question 11

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Companies sometimes sell the cash flows from a bundle of loans.Such bonds are known as asset-backed bonds.

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Question 12

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Firms have the right to resell any Treasury stock they own.

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Question 13

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Different classes of stock often have different voting rights.

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Question 14

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If shareholders do not like the policies that management pursues,they can vote in a different board of directors.

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Question 15

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A majority of a firm's directors must be independent of the firm's management.

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Question 16

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Corporate investors are indifferent between investing in common and preferred shares.

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Question 17

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If you are concerned with maintaining the market value of your preferred stock,you should purchase floating-rate preferred shares.

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Question 18

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A convertible bond generally has a higher market value than a comparable non-convertible bond.

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Question 19

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A corporation cannot default on funded debt.

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Question 20

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Dividends represent an important component of a firm's net book value.

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