The ultimate ownership of the firm resides:

A. With management

B. With common shareholders

C. With preferred shareholders

D. With bondholders

Preferred shareholders:

A. Play a primary role in the financing of the firm

B. Have a subordinated claim to dividends

C. Possess an ownership interest in the firm

D. Normally have no vote on corporate issues

All income not paid out to creditors or preferred shareholders:

A. Is paid out as common stock dividends

B. Is distributed as interest to bondholders

C. Automatically belongs to common shareholders

D. Is subject to a higher federal income tax rate

As the owners of the firm, common shareholders:

A. Have a primary claim on earnings

B. Have the right to vote on all important corporate issues

C. Have a legally enforceable right to dividends

D. Play a secondary role in financing the firm

The most important voting issue for common shareholders is:

A. Election of the board of directors

B. Dividend policy

C. Proxy assignment

D. Adoption of the annual report

Under a pre-emptive right provision:

A. Holders of common stock must be given the first option to purchase new shares

B. Common shareholders have a pre-emptive right to dividends

C. Preferred shareholders have the first option on new common shares

D. Dilution of existing positions is encouraged

Preferred equity has all of the following characteristics except:

A. Fixed dividends

B. The cumulative right to annual dividends

C. Precedence over common stock dividends

D. Residual claim to income

Preferred stock may be justified in that it:

A. Expands the capital base without diluting common equity

B. It is lower cost source of financing than debt

C. Dividends are tax-deductible

D. Really has no justification

To institutional investors, preferred stock may be very attractive because:

A. Dividend payments are assured

B. Dividends from another corporation are usually tax-exempt

C. The preferred yield is normally higher than that of debt

D. It provides balance to the issuing firm's capital structure

With cumulative dividends:

A. Preferred stock may participate over and above the quoted yields

B. The preferred shareholder is assured of receiving a dividend every year

C. Preferred dividends accumulate and must be paid in full

D. The firm's obligation to its shareholders is lessened

A preferred issue carrying a call provision will carry:

A. A higher yield than non-callable preferred

B. A lower yield than non-callable preferred

C. The same yield as non-callable preferred

D. The same yield as callable debt

In terms of increasing risk to the investor, the proper ranking would be:

A. Common stock, preferred stock, secured debt

B. long-term government debt, subordinated debt, common stock

C. long-term government debt, secured debt, preferred stock

D. Secured debt, common stock, preferred stock

In terms of decreasing return to the investor, the proper ranking would be:

A. Common stock, long-term government debt, preferred stock

B. long-term government debt, common stock, preferred stock

C. Preferred stock, common stock, secured debt

D. Common stock, secured debt, treasury bills

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