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Foundations of Financial Management.

Textbook: Foundations of Financial Management 12th edition
Question 3

Which of the following is not a true statement?
a. Common stockholders have a residual claim to income.
b. Bondholders may force a corporation into bankruptcy for failure to make interest payments.
c. Common stockholders are legally entitled to some dividend.
d. A minority interest can still elect members to the Board of Directors under cumulative voting even though someone else owns 51% of the stock.

Question 4

Which of the following is not commonly used to minimize transaction exposure in foreign exchange dealings?
a. Hedging in the forward exchange market
b. Hedging in the money market
c. Hedging in the stock market
d. Hedging in the currency futures market

Question 8

Tricki Corporation stock sells for $60 rights-on, and the subscription priced is $50. Ten rights are required to purchase one share. Tomorrow the stock of Tricki will go ex-rights. What is the price of Tricki expected to be when it begins trading ex-rights?
a. $57.23
b. $59.00
c. $59.09
d. $60

Question 9

Buggy Whip Manufacturing Company is issuing preferred stock yielding 10%. Selten Corporation is considering buying the stock. Buggy's tax rate is 0%, due to continuing heavy tax losses, and Selten's tax rate is 34%. What is the after-tax preferred yield for Selten?
a. 3.4%
b. 6.6%
c. 8.98%
d. 10.0%

Question 10

Which of the following is not an advantage to a rights offering?
a. Current shareholders are protected against dilution.
b. The firm has a built-in market of knowledgeable investors.
c. Distribution costs are lower than a public offering.
d. Distribution costs are higher than a public offering.

Question 11

What advantages might former Vice President Al Gore enjoy regarding his addition to the board of directors of Apple Computer? What advantages might Apple expect? On the other hand, what would the disadvantages be for either party? (200 words)

Question 12

Explain why the effect of international mergers on the market value of the acquiring firm is often more positive returns than for domestic mergers. (200 words)

Solution Preview

Question 3

Which of the following is not a true statement?
a. Common stockholders have a residual claim to income.
b. Bondholders may force a corporation into bankruptcy for failure to make interest payments.
c. Common stockholders are legally entitled to some dividend.
d. A minority interest can still elect members to the Board of Directors under cumulative voting even though someone else owns 51% of the stock.

c. Common stockholders are legally entitled to some dividend.

Question 4

Which of the following is not commonly used to minimize transaction exposure in foreign exchange dealings?
a. Hedging in the forward exchange market
b. Hedging in the money market
c. Hedging in the stock market
d. Hedging in the currency futures market

c. Hedging in the stock market

Question 8

Tricki Corporation stock sells for $60 rights-on, and the subscription priced is $50. Ten rights are required to purchase one share. Tomorrow the stock of Tricki will go ex-rights. What is the price of Tricki expected to be when it begins trading ex-rights?
a. $57.23
b. $59.00
c. $59.09
d. $60

The value of each right is equal to the difference between the current market price of the stock, rights on, and the subscription price of the rights issue divided by the number of rights needed to purchase one new share plus one.
Thus value of rights= (60-50)/ (10+1)= 10/11= ...

Solution Summary

The solution discusses the foundations of financial managements.

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