Practicefinal2 MCsolutions
Section A: Answer all questions. Total 42 points – each question in this section carries 3.5 points. Write the responses to ALL questions in your answer sheet.
1. A corporation has 2000 shares outstanding and 6 directors are up for election. The stock features cumulative voting. About how many shares do you have to own to guarantee electing at least yourself to one position on the board of directors (ignoring possible ties)? A) 1000. B) 333. C) 286. D) 1715. E) 343.
2. The written agreement between a corporation and its bondholders might contain a prohibition against paying dividends in excess of current earnings. This prohibition is an example of a(n):
A) maintenance of security provision.
B) collateral restriction.
C) affirmative indenture.
D) restrictive covenant.
E) none of the above.
3. Ignore time value and discounting for this question. If the marginal investor has a tax rate of 33% and a company has announced a dividend of $3.00:
A) the price of stock should decrease by $2.00 immediately after the date of record.
B) the price of stock should decrease by $2.00 immediately after the ex-dividend date.
C) the price of stock should decrease by $4.48 immediately after the date of record.
D) the price of stock should decrease by $4.48 immediately after the ex-dividend date.
E) both b & c.
4. Corporations pay no income taxes. Investors pay no taxes on capital gains, but they pay a 28% income tax on dividends (Applied to ALL investors). Two corporations have exactly the same risk, and both have a current stock price of $100. Corporation A pays no dividend and will have a price of $110 one year from now. Corporation B pays dividends and will have a price of $105 one year from now after payment of a dividend. What is the value of the dividend that investors expect Corporation B to pay?
A) $4.54.
B) $5.00.
C) $5.50.
D) $6.94.
E) It is impossible to calculate the expected dividend.
Calculate discount rate from A. Use
1. A corporation has 2000 shares outstanding and 6 directors are up for election. The stock features cumulative voting. About how many shares do you have to own to guarantee electing at least yourself to one position on the board of directors (ignoring possible ties)? A) 1000. B) 333. C) 286. D) 1715. E) 343.
2. The written agreement between a corporation and its bondholders might contain a prohibition against paying dividends in excess of current earnings. This prohibition is an example of a(n):
A) maintenance of security provision.
B) collateral restriction.
C) affirmative indenture.
D) restrictive covenant.
E) none of the above.
3. Ignore time value and discounting for this question. If the marginal investor has a tax rate of 33% and a company has announced a dividend of $3.00:
A) the price of stock should decrease by $2.00 immediately after the date of record.
B) the price of stock should decrease by $2.00 immediately after the ex-dividend date.
C) the price of stock should decrease by $4.48 immediately after the date of record.
D) the price of stock should decrease by $4.48 immediately after the ex-dividend date.
E) both b & c.
4. Corporations pay no income taxes. Investors pay no taxes on capital gains, but they pay a 28% income tax on dividends (Applied to ALL investors). Two corporations have exactly the same risk, and both have a current stock price of $100. Corporation A pays no dividend and will have a price of $110 one year from now. Corporation B pays dividends and will have a price of $105 one year from now after payment of a dividend. What is the value of the dividend that investors expect Corporation B to pay?
A) $4.54.
B) $5.00.
C) $5.50.
D) $6.94.
E) It is impossible to calculate the expected dividend.
Calculate discount rate from A. Use