Leach TB Chap13 Ed3


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Unformatted text preview: CHAPTER 13 SECURITY STRUCTURES AND DETERIMINING ENTERPRISE VALUES TrueFalse Questions F. 1. Preferred stock is the equity claim senior to common stock providing preference on dividends but not liquidation proceeds. F. 2. For preferred noncumulative stock, all previously unpaid preferred dividends must be paid before any common stock dividend is paid. F. 3. Convertible preferred stockholders have the right to convert a preferred share into a specified number of common shares at any time after the expiration date. T. 4. If a share of preferred stock has a $10 par value, and the stock has a 2:1 conversion ratio, then the conversion price would be $5. T. 5. By issuing preferred stock, and thus forfeiting bankruptcy rights from the use of debt, the venture and its investors can benefit by committing to an internal reorganization as opposed to bankruptcy reorganization. T. 6. For American and Bermudan embedded options, the exercise price can change over time as specified in the security agreement. F. 7. A warrant is a call option issued by a company granting the holder the right to buy common stock at a specific price at a specific time. T. 8. If a call option can be bought for $12 and the stocks market value is $12, its said to be at the money. F. 9. As the underlying stock price increases in value, a put option to sell it becomes more valuable. T. 10. The value of a warrant can be directly derived from the value of a call option. T. 11. A preemptive right is a right for existing owners to buy sufficient shares to preserve their ownership share. F. 12. Convertible debt is debt that converts into preferred stock. T. 13. An option is a right to buy or sell additional shares of stock. 73 F. 14. An American-style option is an option that can be exercised only at the expiration date T. 15. An option not currently worth exercising is said to be an out of the money option. F. 16. Owning a put option on a stock is the same as selling a call option on that same stock....
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This note was uploaded on 12/05/2009 for the course FIN Fin 595 taught by Professor Shabbir during the Spring '09 term at CSU Dominguez Hills.

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