Week 2 Scribd answers

Week 2 Scribd answers - CHAPTER 20 HYBRID FINANCING:...

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(Difficulty: E = Easy, M = Medium, and T = Tough) Multiple Choice: Conceptual Easy: Lease cash flows Answer: c Diff: E 1 . The riskiness of the cash flows to the lessee, with the possible exception of residual value, is about the same as the riskiness of the lessee’s a. Equity cash flows. b. Capital budgeting project cash flows. c. Debt cash flows. d. Pension fund cash flows. e. None of the statements above is correct. Operating lease Answer: e Diff: E 2 . Operating leases usually have terms that include a. Maintenance of the equipment. b. Only partial amortization. c. Cancellation clauses. d. Statements a and c are correct. e. All of the statements above are correct. Leasing Answer: c Diff: E N 3 . Which of the following statements concerning leasing is most correct? a. A sale and leaseback is a lease under which the lessor maintains and finances the property; also called a service lease. b. The lessor is the party that uses the leased property. c. A financial lease is a lease that does not provide for maintenance services, is not cancelable, and is fully amortized over its life; also called a capital lease. d. An important characteristic of operating leases is the fact that they are frequently fully amortized; in other words, the payments required under the lease contract are sufficient to recover the full cost of the equipment. e. None of the statements above. Chapter 20 - Page 1 CHAPTER 20 HYBRID FINANCING: PREFERRED STOCK, LEASING, WARRANTS, AND CONVERTIBLES
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Reporting earnings Answer: d Diff: E 4 . Which of the following are methods of reporting earnings when warrants or convertibles are outstanding? a. Basic EPS. b. Primary EPS. c. Diluted EPS. d. All of the statements above are correct. e. None of the statements above is correct. Reporting earnings Answer: d Diff: E 5 . Which of the following methods of reporting earnings when warrants or convertibles are outstanding are required under SEC rules? a. Basic EPS. b. Primary EPS. c. Diluted EPS. d. Statements a and c are correct. e. All of the statements above are correct. Warrants Answer: e Diff: E N 6 . Which of the following statements concerning warrants is most correct? a. Warrants cannot be traded separately from the bond with which they are associated. b. A warrant is a long-term option to buy a stated number of shares of common stock at a specified price. c. Warrants are long-term call options that have value because holders can buy the firm’s common stock at the exercise price regardless of how high the market price climbs. d. Statements a, b, and c are correct. e. Statements b and c are correct. Medium: Lease decision Answer: e Diff: M 7 . In the lease versus buy decision, leasing is often preferable a. Since it does not limit the firm’s ability to borrow to make other investments. b. Because, generally, no down payment is required, and there are no
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Week 2 Scribd answers - CHAPTER 20 HYBRID FINANCING:...

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