B the bondholder to exchange the bond at no

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b. the bondholder to exchange the bond, at no additional cost, for common shares. c. the bondholder to redeem the bond early by paying a call premium. d. the issuer to pay a premium in order to prevent bondholders from redeeming bonds. 85. CSO: 2B2b LOS: 2B2c Protective clauses set forth in an indenture are known as a. provisions. b. requirements. c. addenda. d. covenants. 86. CSO: 2B2b LOS: 2B2c A requirement specified in an indenture agreement which states that a company cannot acquire or sell major assets without prior creditor approval is known as a a. protective covenant. b. call provision. c. warrant. d. put option.
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180 87. CSO: 2B2b LOS: 2b2c Dorsy Manufacturing plans to issue mortgage bonds subject to an indenture. Which of the following restrictions or requirements are likely to be contained in the indenture? I. Receiving the trustee’s permission prior to selling the property. II. Maintain the property in good operating condition. III. Insuring plant and equipment at certain minimum levels. IV. Including a negative pledge clause. a. I and IV only. b. II and III only. c. I, III, and IV only. d. I, II, III and IV. 88. CSO: 2B2c LOS: 2B2d Which one of the following statements concerning debt instruments is correct ? a. The coupon rate and yield of an outstanding long-term bond will change over time as economic factors change. b. A 25-year bond with a coupon rate of 9% and one year to maturity has more interest rate risk than a 10-year bond with a 9% coupon issued by the same firm with one year to maturity. c. For long-term bonds, price sensitivity to a given change in interest rates is greater the longer the maturity of the bond. d. A bond with one year to maturity would have more interest rate risk than a bond with 15 years to maturity. 89. CSO: 2B2b LOS: 2B2d Which one of the following situations would prompt a firm to issue debt, as opposed to equity, the next time it raises external capital? a. High breakeven point. b. Significant percentage of assets under capital lease. c. Low fixed-charge coverage. d. High effective tax rate. 90. CSO: 2B2b LOS: 2B2c Which one of the following is a debt instrument that generally has a maturity of ten years or more? a. A bond. b. A note. c. A chattel mortgage. d. A financial lease.
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181 91. CSO: 2B2b LOS: 2B2b James Hemming, the chief financial officer of a mid-western machine parts manufacturer, is considering splitting the company’s stock, which is currently selling at $80.00 per share. The stock currently pays a $1.00 per share dividend. If the split is two-for-one, Mr. Hemming may expect the post split price to be a. exactly $40.00, regardless of dividend policy. b. greater than $40.00, if the dividend is changed to $0.45 per new share. c. greater than $40.00, if the dividend is changed to $0.55 per new share. d. less than $40.00, regardless of dividend policy. 92. CSO: 2B2b LOS: 2B2b Which one of the following best describes the record date as it pertains to common stock?
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