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									1. All of the following are advantages of going public except A) more funds are available to publicly-
traded firms. B) the fact that a company is public helps in bank negotiations and marketing. C)
publicly-traded stocks afford the stockholders more liquidity. D) the firm disseminates more
information to the public on corporate affairs. 2. All of the following are disadvantages of going public
except A) the firm may now become active in mergers and acquisitions. B) the company must make
all information available to the public through filings to the SEC and the state. C) an erosion of value
may take place after the initial offering. D) there is a high cost associated with going public. 3. Firm X
needs to net $7,800,000 from the sale of common stock. Its investment banker has informed the firm
that the retail price will be $22 per share, and that the firm will receive $19 per share. Out-of-pocket
costs are $100,000. How many shares must be sold? A) 410,526 B) 354,545 C) 359,091 D) 415,790
4. A proxy is A) a device for circumventing regular voting procedures. B) a coupon attached to each
share of stock and used by the shareholders in casting his vote on current issues. C) an authorization
of a registered stockholder to another person to act in his place at the meeting. D) a warrant allowing
a stockholder to purchase a specified number of additional shares at a given price. 5. An increasing
proportion of shares in the U.S. are owned by A) individual investors. B) corporations (Treasury
Stock). C) institutions. D) governments. 6. If a preferred stock is of the cumulative type A) dividends
must be paid on an equal basis with common, so long as earnings permit. B) dividends cannot be
passed if they are earned. C) the cumulative voting rule applies in the exercise of the voting privilege.
D) unpaid dividends of one period must be carried forward and paid in subsequent periods before
anything can be paid to common stockholders. 7. 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. 8. Under normal operating
conditions, the board of directors is elected by A) the common stockholders. B) the preferred
stockholders. C) the bondholders. D) two of the above. 9. Sharpe Products has 1 million outstanding
shares and 9 directors to be elected. Cumulonimbus Holdings owns 175,000 shares of Sharpe. How
many directors can Cumulonimbus elect with cumulative voting? A) 0 B) 1 C) 2 D) 3 10. The Harsanyi
Corp. is considering four investments. Which provides the highest after-tax return for Harsanyi Corp. if
it is in the 34% tax bracket? A) treasury bonds at 6.0% B) corporate bonds at 8.0% C) municipal
bonds at 5.0% D) preferred stock at 7.0% 11. Kuhns Corp. has 200,000 shares of preferred stock
outstanding that is cumulative. The dividend is $6.50 per share and has not been paid for 3 years. If
Kuhns earned $3 million this year, what could be the maximum payment ot the preferred stockholders
on a per share basis? A) $19.50 per share B) $15.00 per share C) $13.00 per share D) $6.50 per

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