Which of the following statements is CORRECT? a. A warrant is basically a long-t
ID: 2774053 • Letter: W
Question
Which of the following statements is CORRECT?
a. A warrant is basically a long-term option that enables the holder to sell common stock back to the firm at an agreed upon price, at a specified time in the future.
c. If a company issuing coupon-paying debt wanted to reduce the cash outflows associated with the coupon payments, it could issue warrants with the debt to accomplish this.
d. One of the disadvantages of warrants to the issuing firm is that they are detachable and can be traded separately from the debt with which they are issued.
Which statement is TRUE?
a. Under a sale and leaseback arrangement, the seller of the leased property is the lessor and the buyer is the lessee.
c. Operating leases help to shift the risk of obsolescence from the user to the lessor.
d. Capital Leases are a form of Off-balance sheet financing
Which statement is TRUE?
b. A detachable warrant is a warrant that can be removed from the security with which it was issued and traded separately from it. Most traded warrants are originally attached to bonds or preferred stocks.
c. The owner of a convertible bond owns, in effect, both a bond and stock.
d. A convertible debenture can never sell for more than its conversion value or its straight bond value.
Which statement is TRUE?
a. The “preferred” feature of preferred stock means that it normally will provide a higher expected return than will common stock.
b. Preferred stock normally has no voting rights. However, most preferred issues stipulate that the preferred stockholders can elect a minority number of the directors if the preferred dividend is omitted.
c. Preferred stock typically has a par value, but the par value has no real meaning
Explanation / Answer
Answer for question no.1:
Option c is the correct option.
Definition of a warrant is it is an option issued by the company to the holder that gives the holder a right to purchase a specified number of shares at a fixed price stated in the warrant.
The statement given in option a is quite opposite to what is mentioned above, hence it is a incorrect statement.
Option c is correct, because issue of warrants for the coupon payments reduces cash outflows in the form of coupon payments.
Option d is incorrect, because warrants can be separately traded from debt, but it is not a disadvantage.hence it is also an incorrect statement.
Answer for question no.2:
Option c.is the correct statement.
Option a states that which is incorrect statement.
a. Under a sale and leaseback arrangement, the seller of the leased property is the lessor and the buyer is the lessee.
Where as under sale and lease back arrangement, the seller of the leased property is the lessee, because once the property is sold the same is taken back onlease from the buyer, hence the buyer is the lessor and the seller becomes lessee. Hence the statement is incorrect.
c. Operating leases help to shift the risk of obsolescence from the user to the lessor.
The above statement is correct because in an operating lease, the asset is leased to the lessee for a period which is less than its useful life and is returned back to the lessor after the expiry of the lease, hence, the risk of obsolescence is with the lessor and not with the lessee.
Option d:
d. Capital Leases are a form of Off-balance sheet financing.
This statement is incorrect because an assets taken as capital lease is considered as a purchased asset in the balance sheet of the lessee.
Answer for question no.3:
Option b is true.
b. A detachable warrant is a warrant that can be removed from the security with which it was issued and traded separately from it. Most traded warrants are originally attached to bonds or preferred stocks.
Warrants are generally issued along with a security which is mostly a bond or preference shares.
c. The owner of a convertible bond owns, in effect, both a bond and stock.
This statement is incorrect because at a time owner of a convertible bond can be bond holder or a share holder, he cannot be both at a time. Before he converts the bonds, he is a bond holder and once he converts the bonds, he becomes a share holder.
d. A convertible debenture can never sell for more than its conversion value or its straight bond value. A convertible debenture can be sold at a value higer than conversion value or its straight bond value, because the value of the shares in the open market could be higher than the underlying bonds value or conversion value.
Answer for question no.4:
Option b. is the correct answer.
a. The “preferred” feature of preferred stock means that it normally will provide a higher expected return than will common stock.
The above statement is incorrect because preferred stock feature is receiving of dividends in preferene to the equity shareholders.
b. Preferred stock normally has no voting rights. However, most preferred issues stipulate that the preferred stockholders can elect a minority number of the directors if the preferred dividend is omitted.
The above statement is correct because in case if preference share holders does not receive preference dividend.
c. Preferred stock typically has a par value, but the par value has no real meaning
The above statement is incorrect because the par value is the value at which the shares are subscribed and dividend is gi en as a percentage of par value.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.