LONG-TERM FINANCE: SHARES, DEBENTURES AND TERM LOANS
Question Bank
Multiple Choice Questions
1. That part of the issued share capital which has been accepted by shareholders, is
called,
(a) Paid-up share capital
(b) Authorized share capital
(c) Equity capital
(d) Subscribed share capital
2. Select the incorrect statement –
(a) An ordinary share is also known as variable income security
(b) Ordinary shares are a source of temporary capital since they do not have a
maturity date.
(c) Ordinary share are referred to as Common share in USA.
(d) For purchasing ordinary shares, shareholders are entitled for dividends.
3. The par value states ,
(a) The issued share capital
(b) The authorized share capital
(c) The paid-up share capital
(d) The subscribed share capital
Financial Management-Eleventh Edition
4. The total shareholder’s equity is also called –
(a) Paid-up share capital
(b) Share premium
(c) Net worth
(d) None of the above
5. Select the incorrect statement –
(a) The ordinary shareholders do not have the right to vote on the matter of
change in the memorandum of association.
(b) Ordinary shareholders have limited liability.
(c) Ordinary shareholders have a residual ownership claim.
(d) All of the above
6. Select the incorrect statement –
(a) Legal obligation of underwriting is not applicable on a right issue.
(b) Legal obligation of underwriting is applicable on a public issue.
(c) A company with a track record is free to determine the issue price for its
shares.
(d) Private placement is helpful to issue small amounts of funds.
7. Shares becoming available on account of non-exercise of rights are –
(a) Taken back by the company
(b) Allotted to shareholders who have applied for additional shares
(c) Sold in the open market
(d) None of the above
8. One of the reasons preference shares are similar to debentures is –
(a) Dividend rate is fixed.
(b) Dividends are not deductible for tax purposes.
(c) In some cases, it has no fixed maturity rate.
(d) Non – payment of dividends does not force the company to insolvency
9. Which one of the following is generally viewed with skepticism by the stock
market?
(a) Debenture issue
(b) Equity issue
(c) Soliciting public deposits
(d) Not declaring large dividends
(e) None of the above
5. If you are the CEO of a company, which one of the following will you decide to
skip in a lean year?
(a) Declaring preference dividend
(b) Declaring equity dividend
(c) Declaring bonus issue
(d) Putting on hold new projects
The par value of an equity share is the value:
(a) As stated in the memorandum
(b) The price at which it is issued
(c) The price at which it will be repurchased
(d) Both a and c
(e) None of the above
7. The income on which the equity holders have a residual claim is:
(a) Profit after tax
(b) Profit after tax plus equity dividend
(c) Profit after tax less equity dividend
(d) Profit after tax less preferred dividend
(e) None of the above
8. When the financial performance of a company is impressive, the board of
directors, if they so wish, can:
(a) Refuse to pay equity dividend
(b) Cannot refuse to pay equity dividend without shareholders’ approval
(c) Refuse to pay preference dividend
(d) Both b and c
(e) None of the above
9. Issue expenses are the least in the case of:
(a) Public issue of equity
(b) Public issue of debentures
(c) Rights issue
(d) Private placement
