All of the following features may be characteristic of preferred stock EXCEPT (a) callable. (b) no maturity date. (c) tax-deductible dividends. (d) convertible.

11. All of the following features may be characteristic of preferred stock EXCEPT
(a) callable.
(b) no maturity date.
(c) tax-deductible dividends.
(d) convertible.
Answer: C
Level of Difficulty: 2
Learning Goal: 2
Topic: Features of Preferred Stock
12. All of the following are characteristics of preferred stock EXCEPT
(a) it is often considered quasi-debt due to fixed payment obligation.
(b) it has less restrictive covenants than debt.
(c) it gives the holder voting rights which permit selection of the firm’s directors.
(d) its holders have priority over common stockholders in the liquidation of assets.
Answer: C
Level of Difficulty: 3
Learning Goal: 2
Topic: Features of Preferred Stock
13. The following are all disadvantages of preferred stock EXCEPT
(a) seniority of the preferred stockholder’s claim.
(b) the cost of preferred stock financing is generally higher than that of debt financing.
(c) most preferred stock sold must be fixed rate to compete with bonds.
(d) preferred stock is generally difficult to sell.
Answer: C
Level of Difficulty: 3
Learning Goal: 2
Topic: Features of Preferred Stock
14. A firm has issued cumulative preferred stock with a $100 par value and a 12 percent
annual dividend. For the past two years, the board of directors has decided not to pay a
dividend. The preferred stockholders must be paid _________ prior to paying the
common stockholders.
(a) $ 0/share
(b) $12/share
(c) $24/share
(d) $36/share
Answer: D
Level of Difficulty: 3
Learning Goal: 2
Topic: Cumulative Preferred Stock
15. A firm has an outstanding issue of 1,000 shares of preferred stock with a $100 par value
and an
8 percent annual dividend. The firm also has 5,000 shares of common stock
outstanding. If the stock is cumulative and the board of directors has passed the
preferred dividend for the prior two years, how much must the preferred stockholders
be paid prior to paying dividends to common stockholders?
(a) $ 8,000
(b) $16,000
(c) $24,000
(d) $25,000
Answer: C
Level of Difficulty: 3
Learning Goal: 2
Topic: Cumulative Preferred Stock
16. A violation of preferred stock restrictive covenants usually permits preferred
shareholders to
(a) force the company into bankruptcy.
(b) sell their shares.
(c) force the retirement of the preferred stock at or above its par value.
(d) force the company to repurchase the shares at a stated amount below par.
Answer: C
Level of Difficulty: 3
Learning Goal: 2
Topic: Features of Preferred Stock
17. The opportunity for management to purchase a certain number of shares of their firm’s
common stock at a specified price over a certain period of time is a
(a) stock option.
(b) warrant.
(c) pre-emptive right.
(d) stock right.
Answer: A
Level of Difficulty: 1
Learning Goal: 3
Topic: Features of Common Stock
18. Another term sometimes applied to a common shareholder is a
(a) fundamental or basic owner of the firm.
(b) residual owner of the firm.
(c) net owner of the firm.
(d) reciprocal owner of the firm.
Answer: B
Level of Difficulty: 1
Learning Goal: 3
Topic: Features of Common Stock
19. Regarding the tax treatment of payments to securities holders, it is true that _________,
while _________.
(a) interest and preferred stock dividends are not tax-deductible; common stock
dividends are tax deductible
(b) interest and preferred stock dividends are tax-deductible; common stock dividends
are not tax-deductible
(c) common stock dividends and preferred stock dividends are tax-deductible; interest
is not tax-deductible
(d) common stock dividends and preferred stock dividends are not tax-deductible;
interest is tax-deductible
Answer: D
Level of Difficulty: 1
Learning Goal: 3
Topic: Contrasting Debt and Equity
20. Shares of stock currently owned by the firm’s shareholders are called
(a) authorized.
(b) issued.
(c) outstanding.
(d) treasury shares.
Answer: C
Level of Difficulty: 1
Learning Goal: 3
Topic: Treasury Stock
21. If a firm has class A and class B common stock outstanding, it means that
(a) each class receives a different dividend.
(b) the par value of each class is different.
(c) the dividend paid to one of the classes is tax deductible by the corporation.
(d) one of the classes is non-voting stock.
Answer: D
Level of Difficulty: 1
Learning Goal: 3
Topic: Features of Common Stock
22. Common stockholders expect to earn a return by receiving
(a) semiannual interest.
(b) fixed periodic dividends.
(c) dividends.
(d) annual interest.
Answer: C
Level of Difficulty: 1
Learning Goal: 3
Topic: Features of Common Stock
23. All of the following are examples of marketable securities EXCEPT
(a) common stock.
(b) a Treasury bill.
(c) commercial paper.
(d) a negotiable certificate of deposit.
Answer: A
Level of Difficulty: 1
Learning Goal: 3
Topic: Marketable Securities
24. _________ is hired by a firm to find prospective buyers for its new stock or bond issue.
(a) A securities analyst
(b) A trust officer
(c) A commercial loan officer
(d) An investment banker
Answer: D
Level of Difficulty: 1
Learning Goal: 3
Topic: Investment Banking
25. A specialist involved in analyzing securities and constructing investment portfolios is
called
(a) an investment banker.
(b) a controller.
(c) an installment loan officer.
(d) a securities analyst or securities broker.
Answer: D
Level of Difficulty: 1
Learning Goal: 3
Topic: Investment Banking
26. The _________ are sometimes referred to as the residual owners of the corporation.
(a) preferred stockholders
(b) unsecured creditors
(c) common stockholders
(d) secured creditors
Answer: C
Level of Difficulty: 2
Learning Goal: 3
Topic: Features of Common Stock
27. Treasury stock results from the
(a) firm selling stock for greater than its par value.
(b) cumulative feature on preferred stock.
(c) repurchase of outstanding stock.
(d) authorization of additional shares of stock by the board of directors.
Answer: C
Level of Difficulty: 2
Learning Goal: 3
Topic: Treasury Stock
28. The purpose of nonvoting common stock is to
(a) limit the voting power of the management.
(b) allow the minority interest to elect one director.
(c) raise capital without giving up any voting rights.
(d) give preference on distribution of earnings to those shareholders who own the
stock.
Answer: C
Level of Difficulty: 2
Learning Goal: 3
Topic: Common Stock Voting
29. A proxy statement gives the shareholder the right
(a) of one vote for each share owned.
(b) to give up their vote to another party.
(c) to maintain their proportionate ownership in the corporation when new common
stock is issued.
(d) to sell their share of stock at a premium.
Answer: B
Level of Difficulty: 2
Learning Goal: 3
Topic: Common Stock Voting
30. A proxy battle is the attempt by
(a) the creditors of a bankrupt firm to seize assets.
(b) the management to dismiss the board of directors.
(c) a nonmanagement group to gain control of the management of a firm through the
solicitation of a sufficient number of corporate votes.
(d) the employees to unionize.
Answer: C
Level of Difficulty: 2
Learning Goal: 3
Topic: Common Stock Voting