Capital Structure

Question 1

A shareholder’s right to maintain her interest in a corporation by purchasing a proportionate share of new stock is known as:

Answer 1

preemptive

Question 2

Who is primarily responsible for setting dividend policy in corporations?

Answer 2

the board

Question 3

An investor who has cash, and wants some control (voting) of a corporation, should purchase:

Answer 3

common shares

Question 4

A corporation cannot make a distribution that:

Answer 4

makes the corporation insolvent

Question 5

An investor who has cash, and wants a guaranteed fixed-date return on his investment, as well as a set date on which to get that investment back, should purchase:

Answer 5

debt

Question 6

In Klang v. Smith’s Food and Drug the court held that:

Answer 6

the corporation may revalue assets and liabilities to reflect current realities when determining whether the repurchase of shares would cause an impairment of the capital of the corporation

Question 7

Under Delaware law, a corporation may:

1. issue shares of stock with high par value
2. issue shares of stock with low par value
3. issue shares of stock with no par value
4. all of the above
5. 1 and 2 only

Answer 7

all of the above

Question 8

Which of the following is not a typical characteristic of preferred stock?

1. Economic rights senior to common stock
2. Liquidation preference
3. Voting rights
4. Dividends before common stock
5. Economic rights subordinate to debt holders

Answer 8

voting rights

Question 9

Crystal, an equity holder of Big Co., enjoys a helpful feature of her interests: if the divided for a period is not paid, the right accumulates and arrearages must be paid before other equity holders may be paid. Crystal holds:

1. Participating preferred stock
2. Redeemable common stock
3. Liquidation debt
4. Cumulative preferred stock
5. Convertible debt

Answer 9

cumulative preferred stock

Question 10

Which of the following is true for corporate debt securities?

1. It may be secured
2. It may be unsecured
3. It may be redeemable
4. It may be callable
5. All of the above

Answer 10

All of the above