TEST BANK For Fundamentals of Corporate Finance, 5th
Edition by Robert Parrino, David Kidwell, Verified Chapters 1 -
21, Complete Newest Version
Money deposited by a borrower with the bank in a low or non interest bearing
account as a condition of a loan agreement is called a - ANSWER: Compensating
balance
Brustle's Pottery either factors or assigns all of its receivables to other firms. This is
known as - ANSWER: Accounts receivable financing
Which one of the following increases cash? - ANSWER: Accepting credit from a
supplier
Which one of the following will increase net working capital? Assume the current
ratio is greater than 1.0 - ANSWER: Selling inventory at a profit on credit
Assume all else held constant. If you pay your suppliers five days sooner then -
ANSWER: You may require additional funds from other sources to fund the cash
cycle
A compensating balance - ANSWER: May be required even if a firm never borrows
funds
Alberto currently owns 2500 shares of Southern Tools. He has just been notified that
the firm is issuing additional shares and he is being given a chance to purchase some
of these shares prior to the shares being offered to the general public. What is this
type of an offer called? - ANSWER: Rights offer
The difference between the underwriters cost of buying shares in a firm
commitment and the offering price of those securities to the public is called the -
ANSWER: Gross spread
D.L. Jones & Co. recently went public. The firm received $20.80 a share on the entire
offer of 25000 shares. Keeser & Co. served as the underwriter and sold 23,700 shares
to the public at an offer price of $22 a share. What type of underwriting was this? -
ANSWER: Firm commitment
With firm commitment underwriting, the issuing firm: - ANSWER: Knows upfront the
amount of money it will receive from the stock offering
What is a seasoned equity offering? - ANSWER: Sale of newly issued equity shares by
a firm that is currently publicly owned
, underwriters generally: - ANSWER: Accept the risk of selling the new securities in
exchange for the gross spread
With Dutch auction underwriting: - ANSWER: All successful bidders pay the same
price per share
To purchase a share in a rights offering, an existing shareholder generally just needs
to: - ANSWER: Submit the required number of rights along with the subscription
price
Steve has estimated the cash inflows and outflows for his hardware store for next
year. The report that he has prepared recapping these cash flows is called a -
ANSWER: cash budget
In terms of public offerings of bonds, what is an indenture? - ANSWER: a formal
contract that specifies a firm's obligations to the bondholders
What kind of corporate dent must be secured by real property? - ANSWER: mortgage
bonds
Why do the issuers of bonds not seek to minimize the strength and numbers of
covenants in a bond agreement? - ANSWER: More covenants lower the interest rate
investors will require to buy the bond
What is a call provision? - ANSWER: an option to the issuer to repurchase the bonds
at a predetermined price
In which of the following situations would the yield to worst for a certain bond be
that bonds yield to call? - ANSWER: The bond's coupon payments are high relative to
market yields; The likelihood of the bond being called is high
Which of the following is a committed line of credit with no fixed maturity? -
ANSWER: Evergreen credit
A petroleum exploration company takes a shortminus−term bank loan in order to
finance the purchase of several truckminus−mounted, vibroseis shakers, which have
unexpectedly come onto the market at a good price. Once the purchase is made, the
company will obtain longminus−term financing. Which of the following best
describes the shortminus−term loan the company has taken? - ANSWER: a bridge
loan
Commercial paper is usually a more expensive source of funds than a
shortminus−term bank loan - ANSWER: False
The interest on commercial paper is typically paid by selling it at an initial discount. -
ANSWER: True
Edition by Robert Parrino, David Kidwell, Verified Chapters 1 -
21, Complete Newest Version
Money deposited by a borrower with the bank in a low or non interest bearing
account as a condition of a loan agreement is called a - ANSWER: Compensating
balance
Brustle's Pottery either factors or assigns all of its receivables to other firms. This is
known as - ANSWER: Accounts receivable financing
Which one of the following increases cash? - ANSWER: Accepting credit from a
supplier
Which one of the following will increase net working capital? Assume the current
ratio is greater than 1.0 - ANSWER: Selling inventory at a profit on credit
Assume all else held constant. If you pay your suppliers five days sooner then -
ANSWER: You may require additional funds from other sources to fund the cash
cycle
A compensating balance - ANSWER: May be required even if a firm never borrows
funds
Alberto currently owns 2500 shares of Southern Tools. He has just been notified that
the firm is issuing additional shares and he is being given a chance to purchase some
of these shares prior to the shares being offered to the general public. What is this
type of an offer called? - ANSWER: Rights offer
The difference between the underwriters cost of buying shares in a firm
commitment and the offering price of those securities to the public is called the -
ANSWER: Gross spread
D.L. Jones & Co. recently went public. The firm received $20.80 a share on the entire
offer of 25000 shares. Keeser & Co. served as the underwriter and sold 23,700 shares
to the public at an offer price of $22 a share. What type of underwriting was this? -
ANSWER: Firm commitment
With firm commitment underwriting, the issuing firm: - ANSWER: Knows upfront the
amount of money it will receive from the stock offering
What is a seasoned equity offering? - ANSWER: Sale of newly issued equity shares by
a firm that is currently publicly owned
, underwriters generally: - ANSWER: Accept the risk of selling the new securities in
exchange for the gross spread
With Dutch auction underwriting: - ANSWER: All successful bidders pay the same
price per share
To purchase a share in a rights offering, an existing shareholder generally just needs
to: - ANSWER: Submit the required number of rights along with the subscription
price
Steve has estimated the cash inflows and outflows for his hardware store for next
year. The report that he has prepared recapping these cash flows is called a -
ANSWER: cash budget
In terms of public offerings of bonds, what is an indenture? - ANSWER: a formal
contract that specifies a firm's obligations to the bondholders
What kind of corporate dent must be secured by real property? - ANSWER: mortgage
bonds
Why do the issuers of bonds not seek to minimize the strength and numbers of
covenants in a bond agreement? - ANSWER: More covenants lower the interest rate
investors will require to buy the bond
What is a call provision? - ANSWER: an option to the issuer to repurchase the bonds
at a predetermined price
In which of the following situations would the yield to worst for a certain bond be
that bonds yield to call? - ANSWER: The bond's coupon payments are high relative to
market yields; The likelihood of the bond being called is high
Which of the following is a committed line of credit with no fixed maturity? -
ANSWER: Evergreen credit
A petroleum exploration company takes a shortminus−term bank loan in order to
finance the purchase of several truckminus−mounted, vibroseis shakers, which have
unexpectedly come onto the market at a good price. Once the purchase is made, the
company will obtain longminus−term financing. Which of the following best
describes the shortminus−term loan the company has taken? - ANSWER: a bridge
loan
Commercial paper is usually a more expensive source of funds than a
shortminus−term bank loan - ANSWER: False
The interest on commercial paper is typically paid by selling it at an initial discount. -
ANSWER: True
