Question

You are the CFO of MacroWare Company. Your company’s stock is traded in the NYSE. Your company wants to invest in a telecommunication technology. You were told by the operation and marketing departments that the project is very promising. You are considering the finance department’s suggestion to issue stocks to finance the project.

  

As a leader of the company, your objective is supposed to _____.  

a. maximize the company’s earnings

b. maximize the company’s earnings per share c. maximize the company’s stock value per share d. maximize social well-being  

You are supposed to act for the best interest of _____.

a. managers  

b. board of directors  

c. existing shareholders

d. potential or future shareholders

The NYSE is a/an _____, in which _____ make a market.

a. OTC market, brokers

b. OTC market, specialists

c. organized exchange, brokers

d. organized exchange, specialists

If you agree with the finance department’s suggestion to issue stocks to raise funds, the stocks will be issued in the _____.  

a. organized exchange

b. secondary market

c. OTC market   

d. IPO market

The current stock price is directly affected by _____.  

a. investors’ anticipation of the company’s future performance (or profitability)

b. the company’s past performance

c. neither a nor b

If the news about the project is announced to the public, the stock price would ____.  

a. increase   

b. decrease

c. unchanged

If you agree with the finance department’s suggestion to issue additional shares to raise funds, shares should be issued _____.  

a. before the announcement of the news about the project   

b. after the announcement of the news about the project

c. either before or after the announcement, the timing doesn’t matter.

If your company also has enough retained earnings to finance the project and at the same time it is able to issue corporate bonds to raise funds, you would like to use _____ to finance the project investment.  

a. retained earnings  

b. bond issues

c. stock issues   

d. there is no difference among the above three.

In the following years, you project generates substantial profits and you want to reward shareholders by paying out some retained earnings. You can reward them by the following three means: cash dividends, stock dividends, stock repurchases. How do cash dividends, stock dividends and stock repurchases affect the stock price respectively?  

a. increase, increase, decrease

b. decrease, increase, increase   

c. decrease, decrease, increase

d. decrease, decrease, decrease  

You are considering how to reward shareholders, cash dividends, stock dividends, or stock repurchases. We know that in terms of tax for the company, these three ways are the same—none of them affect the company-level tax. In terms of tax for shareholders, which of the followings is the worst choice?  

a. cash dividends

b. stock dividends

c. stock repurchases

d. there is no difference between them

Answer 1

You are the CFO of MacroWare Company. Your company’s stock is traded in the NYSE. Your company wants to invest in a telecommunication technology. You were told by the operation and marketing departments that the project is very promising. You are considering the finance department’s suggestion to issue stocks to finance the project.   
  
As a leader of the company, your objective is supposed to _____.
c. maximize the company’s stock value per share

You are supposed to act for the best interest of _____.
c. existing shareholders

The NYSE is a/an _____, in which _____ make a market.   
d. organized exchange, specialists

If you agree with the finance department’s suggestion to issue stocks to raise funds, the stocks will be issued in the _____.
a. organized exchange

The current stock price is directly affected by _____.
a. investors’ anticipation of the company’s future performance (or profitability)

If the news about the project is announced to the public, the stock price would ____.
a. increase

If you agree with the finance department’s suggestion to issue additional shares to raise funds, shares should be issued _____.   
b. after the announcement of the news about the project   

If your company also has enough retained earnings to finance the project and at the same time it is able to issue corporate bonds to raise funds, you would like to use _____ to finance the project investment.
a. retained earnings

In the following years, you project generates substantial profits and you want to reward shareholders by paying out some retained earnings. You can reward them by the following three means: cash dividends, stock dividends, stock repurchases. How do cash dividends, stock dividends and stock repurchases affect the stock price respectively?   
c. decrease, decrease, increase
  

You are considering how to reward shareholders, cash dividends, stock dividends, or stock repurchases. We know that in terms of tax for the company, these three ways are the same—none of them affect the company-level tax. In terms of tax for shareholders, which of the followings is the worst choice?
a. cash dividends