Intermediate Financial Management 12th Edition by Eugene F. Brigham – Test Bank

Intermediate Financial Management 12th Edition by Eugene F. Brigham – Test Bank

Chapter 08

1. A proxy is a document giving one party the authority to act for another party, including the power to vote shares of common stock. Proxies can be important tools relating to control of firms.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Difficulty: Easy
LEARNING OBJECTIVES: INTE.GENE.16.53 – LO: 8-1
NATIONAL STANDARDS: United States – BUSPROG: Reflective Thinking
STATE STANDARDS: United States – AK – DISC: Stocks and Bonds
LOCAL STANDARDS: United States – OH – Default City – TBA
TOPICS: Proxy
KEYWORDS: Bloom’s: Knowledge

2. The preemptive right gives current stockholders the right to purchase, on a pro rata basis, any new shares issued by the firm. This right helps protect current stockholders against both dilution of control and dilution of value.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Difficulty: Easy
LEARNING OBJECTIVES: INTE.GENE.16.53 – LO: 8-1
NATIONAL STANDARDS: United States – BUSPROG: Reflective Thinking
STATE STANDARDS: United States – AK – DISC: Stocks and Bonds
LOCAL STANDARDS: United States – OH – Default City – TBA
TOPICS: Preemptive right
KEYWORDS: Bloom’s: Knowledge

3. If a firm’s stockholders are given the preemptive right, this means that stockholders have the right to call for a meeting to vote to replace the management. Without the preemptive right, dissident stockholders would have to seek a change in management through a proxy fight.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Difficulty: Easy
LEARNING OBJECTIVES: INTE.GENE.16.53 – LO: 8-1
NATIONAL STANDARDS: United States – BUSPROG: Reflective Thinking
STATE STANDARDS: United States – AK – DISC: Stocks and Bonds
LOCAL STANDARDS: United States – OH – Default City – TBA
TOPICS: Preemptive right
KEYWORDS: Bloom’s: Knowledge

4. Classified stock differentiates various classes of common stock, and using it is one way companies can meet special needs such as when owners of a start-up firm need additional equity capital but don’t want to relinquish voting control.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Difficulty: Easy
LEARNING OBJECTIVES: INTE.GENE.16.54 – LO: 8-2
NATIONAL STANDARDS: United States – BUSPROG: Reflective Thinking
STATE STANDARDS: United States – AK – DISC: Stocks and Bonds
LOCAL STANDARDS: United States – OH – Default City – TBA
TOPICS: Classified stock
KEYWORDS: Bloom’s: Knowledge

5. Founders’ shares are a type of classified stock where the shares are owned by the firm’s founders, and they generally have more votes per share than the other classes of common stock.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Difficulty: Easy
LEARNING OBJECTIVES: INTE.GENE.16.54 – LO: 8-2
NATIONAL STANDARDS: United States – BUSPROG: Reflective Thinking
STATE STANDARDS: United States – AK – DISC: Stocks and Bonds
LOCAL STANDARDS: United States – OH – Default City – TBA
TOPICS: Founders’ shares
KEYWORDS: Bloom’s: Knowledge

6. The expected total return on a share of stock refers to the dividend yield less any commissions paid when the stock is purchased and sold.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Difficulty: Easy
LEARNING OBJECTIVES: INTE.GENE.16.55 – LO: 8-11
NATIONAL STANDARDS: United States – BUSPROG: Reflective Thinking
STATE STANDARDS: United States – AK – DISC: Stocks and Bonds
LOCAL STANDARDS: United States – OH – Default City – TBA
TOPICS: Expected otal stock returns
KEYWORDS: Bloom’s: Knowledge

7. The cash flows associated with common stock are more difficult to estimate than those related to bonds because stock has a residual claim against the company versus a contractual obligation for a bond.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Difficulty: Easy
LEARNING OBJECTIVES: INTE.GENE.16.56 – LO: 8-4
NATIONAL STANDARDS: United States – BUSPROG: Reflective Thinking
STATE STANDARDS: United States – AK – DISC: Stocks and Bonds
LOCAL STANDARDS: United States – OH – Default City – TBA
TOPICS: Common stock cash flows
KEYWORDS: Bloom’s: Knowledge

8. According to the basic FCF stock valuation model, the value an investor should assign to a share of stock is dependent on the length of time he or she plans to hold the stock.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Difficulty: Easy
LEARNING OBJECTIVES: INTE.GENE.16.56 – LO: 8-4
NATIONAL STANDARDS: United States – BUSPROG: Reflective Thinking
STATE STANDARDS: United States – AK – DISC: Stocks and Bonds
LOCAL STANDARDS: United States – OH – Default City – TBA
TOPICS: Value: investment horizon
KEYWORDS: Bloom’s: Knowledge