Corporate-Finance---Berk-DeMarzo--Test-Bank-Chapte

1Copyright©2014PearsonEducation,Inc.CorporateFinance,3e(Berk/DeMarzo)Chapter24DebtFinancing24.1CorporateDebt1)Whatkindofcorporatedebtmustbesecuredbyrealproperty?A)MortgagebondsB)NotesC)Asset-backedbondsD)DebenturesAnswer:ADiff:1Section:24.1CorporateDebtSkill:Definition2)Whatkindofcorporatedebtcanbesecuredbyanyspecifiedassets?A)MortgagebondsB)NotesC)Asset-backedbondsD)DebenturesAnswer:CDiff:1Section:24.1CorporateDebtSkill:Definition3)Whatkindofcorporatedebthasamaturityoflessthan10years?A)Asset-backedbondsB)DebenturesC)NotesD)MortgagebondsAnswer:CDiff:1Section:24.1CorporateDebtSkill:Definition4)Whatkindofunsecuredcorporatedebthasamaturityoflessthan10years?A)MortgagebondsB)Asset-backedbondsC)DebenturesD)NotesAnswer:CDiff:1Section:24.1CorporateDebtSkill:Definition2Copyright©2014PearsonEducation,Inc.5)Bondsissuedbyalocalentity,denominatedinthelocalcurrency,tradedinalocalmarket,butpurchasedbyforeignersarecalled:A)domesticbonds.B)Yankeebonds.C)Eurobonds.D)foreignbonds.Answer:ADiff:1Section:24.1CorporateDebtSkill:Definition6)Bondsissuedbyaforeigncompanyinalocalmarket,intendedforlocalinvestors,anddenominatedinthelocalcurrencyareknownas:A)domesticbonds.B)Yankeebonds.C)Eurobonds.D)foreignbonds.Answer:DDiff:1Section:24.1CorporateDebtSkill:Definition7)WhichofthefollowingstatementsisFALSE?A)Globalbondscombinethefeaturesofdomestic,foreign,andEurobonds,andareofferedforsaleinseveraldifferentmarketssimultaneously.B)Inaleveragedbuyout(LBO),agroupofprivateinvestorspurchasesalltheequityofapubliccorporation.C)Atermloanisabankloanthatlastsforaspecificterm.D)EurobondsareinternationalbondsthataredenominatedinthelocalEuropeancurrencyofthecountryinwhichtheyareissued.Answer:DExplanation:D)Eurobondsareinternationalbondsthatarenotdenominatedinthelocalcurrencyofthecountryinwhichtheyareissued.Diff:2Section:24.1CorporateDebtSkill:Conceptual3Copyright©2014PearsonEducation,Inc.8)WhichofthefollowingstatementsisFALSE?A)Withregisteredbonds,oneachcouponpaymentdate,thebondissuerconsultsitslistofregisteredownersandmailseachowneracheck(ordirectlydepositsthecouponpaymentintotheowner'sbrokerageaccount).B)Ifacouponbondisissuedatadiscount,itiscalledanoriginalissuediscountbond.C)Thefacevalueorprincipalamountofthebondisdenominatedinstandardincrements,mostoften$10,000.D)Inapublicoffering,theindenturelaysoutthetermsofthebondissue.Answer:CExplanation:C)Thefacevalueorprincipalamountofthebondisdenominatedinstandardincrements,mostoften$1,000.Diff:2Section:24.1CorporateDebtSkill:Conceptual9)WhichofthefollowingstatementsisFALSE?A)Intheeventofdefault,theassetsnotpledgedascollateralforoutstandingbondscannotbeusedtopayofftheholdersofsubordinateddebenturesuntilallmoreseniordebthasbeenpaidoff.B)Becausemorethanonedebenturemightbeoutstanding,thebondholder'spriorityinclaimingassetsintheeventofdefault,knownasthebond'sseniority,isimportant.C)Whenafirmconductsasubsequentdebentureissuethathaslowerprioritythanitsoutstandingdebt,thenewdebtisknownasasubordinateddebenture.D)Mostdebentureissuescontainclausesrestrictingthecompanyfromissuingnewdebtwithequalorlowerprioritythanexistingdebt.Answer:DExplanation:D)Mostdebentureissuescontainclausesrestrictingthecompanyfromissuingnewdebtwithequalorhigherprioritythanexistingdebt.Diff:2Section:24.1CorporateDebtSkill:Conceptual10)WhichofthefollowingstatementsregardingtheprivatedebtmarketisFALSE?A)Privatedebthastheadvantagethatitavoidsthecostofregistration.B)Bankloansareanexampleofprivatedebt,debtthatisnotpubliclytraded.C)Privatedebthasthedisadvantageofbeingilliquid.D)Thepublicdebtmarketislargerthantheprivatedebtmarket.Answer:DExplanation:D)Theprivatedebtmarketislargerthanthepublicdebtmarket.Diff:2Section:24.1CorporateDebtSkill:Conceptual4Copyright©2014PearsonEducation,Inc.11)WhichofthefollowingstatementsisFALSE?A)Almostallbondsthatareissuedtodayareregisteredbonds.B)Thetrustcompanyrepresentsthebondholdersandmakessurethatthetermsoftheindentureareenforced.C)Forprivateplacements,theprospectusmustincludeanindenture,aformalcontractbetweenthebondissuerandatrustcompany.D)Inthecaseofdefault,thetrustcompanyrepresentsthebondholders'interests.Answer:CExplanation:C)Forpublicdebtissue,theprospectusmustincludeanindenture,aformalcontractbetweenthebondissuerandatrustcompany.Diff:2Section:24.1CorporateDebtSkill:Conceptual12)WhichofthefollowingstatementsisFALSE?A)Theregisteredbondsystemalsofacilitatestaxcollectionbecausethegovernmentcaneasilykeeptrackofallinterestpaymentsmade.B)Assetbackedbondsandmortgagebondsaresecureddebt:Specificassetsarepledgedascollateralthatbondholdershaveadirectclaimtointheeventofbankruptcy.C)Notestypicallyhavelongermaturities(morethantenyears)thandebentures.D)Althoughthewordbondiscommonlyusedtomeananykindofdebtsecurity,technicallyacorporatebondmustbesecured.Answer:CExplanation:C)Notestypicallyhaveshortermaturities(lessthantenyears)thandebentures.Diff:2Section:24.1CorporateDebtSkill:Conceptual13)WhichofthefollowingstatementsregardingprivateplacementsisFALSE?A)Aprivateplacementisabondissuethatdoesnottradeonapublicmarketbutratherissoldto