Q: Which formula correctly calculates the market value of equity for a company with 262 million shares outstanding and a market price of $270 per share?

$$262 \times 270 = 70,740$$ million

Question 1

Which of the following best describes the difference between book value and market value of common equity?

Accepted Answer

Book value is a backward-looking measure based on capital raised from shareholders, while market value is forward-looking and depends on expected future dividends.

Question 2

A company has 800 million authorized shares, 262 million outstanding shares, and 56 million treasury shares. How many shares have been issued?

Accepted Answer

$$262 + 56 = 318$$ million shares

Question 3

Which of the following is NOT a feature of preferred stock?

Accepted Answer

Preferred stockholders have voting rights in all corporate matters.

Question 4

A company issues a bond that can be repurchased by the firm before maturity at a specified price. What type of bond is this?

Accepted Answer

Callable bond

Question 5

If a firm chooses to finance its operations by retaining profits rather than distributing them to shareholders, what type of financing is this?

Accepted Answer

Internal financing

Question 6

Which formula correctly calculates the market value of equity for a company with 262 million shares outstanding and a market price of $270 per share?

Accepted Answer

$$262 	imes 270 = 70,740$$ million

Question 7

Which of the following best describes a cumulative voting system for electing directors?

Accepted Answer

Shareholders can cast all their votes for one candidate for the board of directors.

Question 8

A company has the following equity accounts: Common shares ($$32 million), Additional paid-in capital (3$$,356 million), Retained earnings ($$25,216 million), Treasury shares at cost (9$$,162 million), Other ($1,147 million). What is the net common equity?

Accepted Answer

$$32 + 3,356 + 25,216 - 9,162 - 1,147 = 18,295$$ million

Question 9

Which of the following securities gives the holder the right to buy shares from a company at a stipulated price before a set date?

Accepted Answer

Warrant

Question 10

Which type of corporate debt is repaid in bankruptcy only after senior debt is paid?

Accepted Answer

Subordinate debt

Question 11

A company issues a bond rated below Baa by Moody's and below BBB by S&P. What is this bond called?

Accepted Answer

Junk bond

Question 12

Which of the following is a source of funds that does NOT require external financing?

Accepted Answer

Internally generated funds

Question 13

Which of the following is true about the book debt ratio and market debt ratio for non-financial firms over time?

Accepted Answer

Both ratios can fluctuate independently and may diverge due to changes in market value of equity.

Question 14

A convertible bond is best described as:

Accepted Answer

A bond that the holder may exchange for a specified amount of another security, typically common stock.

Question 15

Which of the following is a benchmark interest rate charged by banks?

Accepted Answer

Prime rate

Question 16

A company wants to retire its debt before maturity. Which of the following mechanisms would it use?

Accepted Answer

Sinking fund

Question 17

Which of the following is NOT a type of security commonly issued by corporations?

Accepted Answer

Bank deposit

Question 18

A company issues Eurodollar notes. What does this mean?

Accepted Answer

The notes are denominated in US dollars and held on deposit in a bank outside the United States.

Question 19

Which of the following is true about a private placement of securities?

Accepted Answer

It is a sale of securities to a limited number of investors without a public offering.

Question 20

Which of the following best describes the value of authorized share capital?

Accepted Answer

The maximum number of shares the company is permitted to issue, as specified in the firm's articles of incorporation.

Corporate Financing and Equity/Debt Instruments: Financial Accounting Study Notes

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