Contemporary Financial Management
14th Edition
ISBN: 9781337090582
Author: R. Charles Moyer, James R. McGuigan, Ramesh P. Rao
Publisher: Cengage Learning
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Chapter 15, Problem 6P
a.
Summary Introduction
To determine: Par value of common stock
b.
Summary Introduction
To determine: Other factors of Company M ability to pay
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Which of the following statements are false? (you may choose more than one statement)
A The issue of ordinary shares will not dilute ownership of the company
B A rights issue will not dilute ownership of the company
C A bonus issue is a means of raising finance for the business
D A company can decide on the level of dividends they pay out to ordinary
shareholders each year
Boehn Corporation accounts for its investment in the common stock of Sells Company under the equity method, since they exert significant influence. Boehn Corporation should ordinarily record a cash dividend received from Sells as
a.
a reduction of the carrying value of the investment.
b.
additional paid-in capital.
c.
an addition to the carrying value of the investment.
d.
dividend income.
Which of the following tests restricts the amount of dividends that a corporation may declare?
a. Cash flow test
b. Book value test
c. Solvency test
d. Income to expense ratio test
Chapter 15 Solutions
Contemporary Financial Management
Ch. 15 - Prob. 1QTDCh. 15 - Prob. 2QTDCh. 15 - Prob. 3QTDCh. 15 - Prob. 4QTDCh. 15 - Prob. 5QTDCh. 15 - Prob. 6QTDCh. 15 - Prob. 7QTDCh. 15 - Prob. 8QTDCh. 15 - Prob. 9QTDCh. 15 - Prob. 10QTD
Ch. 15 - Prob. 11QTDCh. 15 - Prob. 12QTDCh. 15 - Prob. 13QTDCh. 15 - Prob. 14QTDCh. 15 - Prob. 15QTDCh. 15 - Prob. 16QTDCh. 15 - Prob. 17QTDCh. 15 - Prob. 18QTDCh. 15 - Prob. 1PCh. 15 - Prob. 2PCh. 15 - Prob. 3PCh. 15 - Prob. 4PCh. 15 - Prob. 5PCh. 15 - Prob. 6PCh. 15 - Prob. 7PCh. 15 - Prob. 8PCh. 15 - Prob. 9PCh. 15 - Prob. 10PCh. 15 - Prob. 11PCh. 15 - Prob. 12PCh. 15 - Prob. 13PCh. 15 - Prob. 14PCh. 15 - Prob. 15P
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- Which one of the following statements about ordinary equity is correct? a. Shareholders have a residual claim to the firm's assets. b. Shareholders are repaid an ordinary share's value on the share's maturity date. c. Shareholders' return is always positive. d. Equity that is listed on the ASX must pay a dividend.arrow_forwardIndicate whether each of the following relates to equity (E) or debt (D) financing and whether itmakes that form of financing more, or less, favorable.1.Interest is tax deductible.2. Dividends are optional.3.It must be repaid.4. Additional stock issuances dilute existing stockholders’ control.arrow_forwardWhat is the distinction between that of Paid-in-Capital and Retained Earnings, in both differences and similarities? What characteristic of a corporation limits a stockholder's loss to the amount of his or her investment in the stock of the corporation? When would a company be able to declare a cash dividend? How many main categories of paid-in capital are there? And what are? What is the definition of the term par value of stock?arrow_forward
- Determine if the following, if stocks or bonds 1. Its buyers receive return called dividend. a. Stocks b. Bonds 2. It is paid based on its redemption value. a. Stocks b. Bonds 3. It is said to be redeemed at par if face value equals redemption value a. Stocks b. Bonds 4. It is represented by a certificate which is proof of ownership. a. Stocks b. Bonds 5. It grants credit to a company. a. Stocks b. Bonds 6. It represents a claim on the company's assets and earnings. a. Stocks b. Bonds 7. Its buyers become lenders to the company. a. Stocks b. Bonds 8. It is a written contract between the borrower and the lender. a. Stocks b. Bonds 9. Some owners of it earn voting rights to some important company decisions. a. Stocks b. Bonds 10. Some owners of it earn voting rights to some important company decisions. a. Stocks b. Bondsarrow_forward4) XYZ Corporation declares and distributes a cash dividend that is a result of current earnings. Under both the fair value and equity method, the receipt of these dividends will be recorded as dividend revenue by the investor. (True/False)arrow_forwardOwners equity represents which of the following? A. the amount of funding the company has from issuing bonds B. the sum of the retained earnings and accounts receivable account balances C. the total of retained earnings plus paid-in capital D. the business owners/owners share of the company, also known as net worth or net assetsarrow_forward
- d. (1) What are the two primary ways companies raise common equity? (2) Why is there a cost associated with reinvested earnings? (3) Jana doesnt plan to issue new shares of common stock. Using the CAPM approach, what is Janas estimated cost of equity?arrow_forwardOn a firm's income statement, you likely will see two entries for earnings per share (EPS): basic and diluted EPS. Basic EPS is the firm's net income available to shareholders divided by the number of shares of common stock. However, while common shares are definite claims of an owner's equity, unexercised stock options, convertible debt and preferred stock, and warrants represent potential claims on an owner's equity. If they are exercised or converted, the number of common shares may increase. The hang is the percentage difference between the number of shares and the potential number of shares. The diluted EPS is the net income available to common shareholders divided by the number of common shares if all options, convertibles, and warrants are exercised or converted. Check Your Understanding A firm is reporting net income available to common shareholders of $21.25 million. The firm has 45 million common shares outstanding and has no convertible preferred stock or debt. However, if…arrow_forwardFor the following three situations: A company uses its paid-in capital (in addition to retained earnings) to pay dividends. A company distributes another company’s shares as dividends. A company distributes its own shares as dividends. What types of dividends are involved, respectively? Enter 1, 2, 3, or 4 that represents the correct answer. 1. property dividends, stock dividends, liquidating dividends, respectively. 2. property dividends, liquidating dividends, stock dividends, respectively. 3. liquidating dividends, property dividends, stock dividends, respectively. 4. liquidating dividends, stock dividends, property dividends, respectively.arrow_forward
- When a company decides to pay a dividend, explain what makes the payment a dividend as opposed to any other type of payment? From which account must this payment be made? Why?arrow_forwardMary Tokar is comparing a GAAP-based company to a company that uses IFRS. Both companies report equity investments. The IFRS company reports unrealized losses on these investments under the heading “Reserves” in its equity section. However, Mary can find no similar heading in the GAAP-based company financial statements. Can Mary conclude that the GAAP-based company has no unrealized gains or losses on its non-trading equity investments? Explain.arrow_forwardWith its earnings, a firm has a decision to make about whether to pay common dividends or a. pay depreciation expense on its fixed assets b. pay preferred dividends c. pay interest to bondholders d. reinvest for future growth On the income statement, interest expense is a. after-tax b. tax-deductible preferred dividents are a. tax-deductible b. after-tax and common dividends are a. after-tax b. tax-deductible Wages are considered a(n) a. an interest expense b. a depreciation expense c. a cost of good sold d. a research and development expense e. an operating expense A company usually expenses ( ) when it incurs them, because the future benefits that this spending is expected to bring are very uncertain and difficult to time. a. a depreciation expense b. an interest expense c. a cost of goods sold d. an operating expense e. a research and development expensearrow_forward
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