Question : 88.Which of the following statements true? A.Interest bonds tax deductible. B.Interest bonds : 1258326

 

 

88.Which of the following statements is true?   

A.Interest on bonds is tax deductible.

 

B.Interest on bonds is not tax deductible.

 

C.Dividends to stockholders are tax deductible.

 

D.Bonds do not have to be repaid.

 

E.Bonds always increase return on equity.

 

 

 

 

89.A bondholder that owns a $1,000, 10%, 10-year bond has:   

A.Ownership rights in the issuing company.

 

B.The right to receive $10 per year until maturity.

 

C.The right to receive $1,000 at maturity.

 

D.The right to receive $10,000 at maturity.

 

E.The right to receive dividends of $1,000 per year.

 

 

 

 

90.Collateral agreements for a note or bond can:   

A.Reduce the risk of loss in comparison with unsecured debt.

 

B.Increase the risk of loss in comparison with unsecured debt.

 

C.Have no effect on risk.

 

D.Reduce the issuer’s assets.

 

E.Increase total cost for the borrower.

 

 

 

 

91.The party that has the right to exercise a call option on callable bonds is:   

A.The bondholder.

 

B.The bond issuer.

 

C.The bond indenture.

 

D.The bond trustee.

 

E.The bond underwriter.

 

 

 

 

92.Which of the following accurately describes a debenture?   

A.A bond with specific assets pledged as collateral.

 

B.A type of bond issued in the names and addresses of the bondholders.

 

C.A type of bond which requires the bond issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds.

 

D.A type of bond which is not collateralized but backed only by the issuer’s general credit standing.

 

E.A type of bond that can be exchanged for a fixed number of shares of the issuing corporation’s common stock.

 

 

 

 

93.A company’s total liabilities divided by its total stockholders’ equity is called the:   

A.Equity ratio.

 

B.Return on total assets ratio.

 

C.Pledged assets to secured liabilities ratio.

 

D.Debt-to-equity ratio.

 

E.Times secured liabilities earned ratio.

 

 

 

 

94.The debt-to-equity ratio:   

A.Is calculated by dividing book value of secured liabilities by book value of pledged assets.

 

B.Is a means of assessing the risk of a company’s financing structure.

 

C.Is not relevant to secured creditors.

 

D.Can always be calculated from information provided in a company’s income statement.

 

E.Must be calculated from the market values of assets and liabilities.

 

 

 

 

95.Charger Company’s most recent balance sheet reports total assets of $27,000,000, total liabilities of $15,000,000 and total equity of $12,000,000. The debt to equity ratio for the period is (rounded to two decimals):   

A.0.56

 

B.1.80

 

C.0.44

 

D.0.80

 

E.1.25

 

 

 

 

96.Seedly Corporation’s most recent balance sheet reports total assets of $35,000,000 and total liabilities of $17,500,000. Management is considering issuing $5,000,000 of par value bonds (at par) with a maturity date of ten years and a contract rate of 7%. What effect, if any, would issuing the bonds have on the company’s debt-to-equity ratio?   

A.Issuing the bonds would cause the firm’s debt-to-equity ratio to improve from 1.0 to 1.3.

 

B.Issuing the bonds would cause the firm’s debt-to-equity ratio to worsen from 1.0 to 1.3.

 

C.Issuing the bonds would cause the firm’s debt-to-equity ratio to remain unchanged.

 

D.Issuing the bonds would cause the firm’s debt-to-equity ratio to improve from .5 to .8.

 

E.Issuing the bonds would cause the firm’s debt-to-equity ratio to worsen from .5 to .8.

Current Situation: Total Assets = Total Liabilities + Stockholders’ Equity35,000,000 = 17,500,000 + 17,500,000Debt-to-equity ratio = 17.5/17.5 or 1.0.If debt is issued: Total Assets = Total Liabilities + Stockholders’ Equity40,000,000 = 22,500,000 + 17,500,000Debt-to-equity ratio = 22.5/17.5 or 1.3.

 

 

 

97.Saffron Industries most recent balance sheet reports total assets of $42,000,000, total liabilities of $16,000,000 and stockholders’ equity of $26,000,000. Management is considering using $3,000,000 of excess cash to prepay $3,000,000 of outstanding bonds. What effect, if any, would prepaying the bonds have on the company’s debt-to-equity ratio?   

A.Prepaying the debt would cause the firm’s debt-to-equity ratio to improve from .62 to .50.

 

B.Prepaying the debt would cause the firm’s debt-to-equity ratio to improve from .62 to .57.

 

C.Prepaying the debt would cause the firm’s debt-to-equity ratio to worsen from .62 to .50.

 

D.Prepaying the debt would cause the firm’s debt-to-equity ratio to worsen from .62 to .57.

 

E.Prepaying the debt would cause the firm’s debt-to-equity ratio to remain unchanged.

Current Situation: Total Assets = Total Liabilities + Stockholders’ Equity42,000,000 = 16,000,000 + 26,000,000Debt-to-equity ratio = 16/26 or .62.If debt is repaid: Total Assets = Total Liabilities + Stockholders’ Equity39,000,000 = 13,000,000 + 26,000,000Debt-to-equity ratio = 13/26 or .50.