FINS1612 Chapter Notes - Chapter 5: Australian Securities Exchange, Preferred Stock, Dividend Imputation
CHAPTER 5 - MULTIPLE CHOICE QUESTIONS
1. Prudent financial management would dictate that a company should not take on more debt than can be
serviced, under pessimistic conditions, without jeopardy to the company’s existence. Therefore a proportion of
total funding should be provided by equity participants. Which of the following main criteria would be
determinants of the appropriate ratio of debt to equity?
I Maximisation of shareholder wealth
II Norm in the industry
III History of the ratio for the firm
IV The stage of the current economic cycle
V Limit imposed by lenders
VI Company’s capacity to service debt
A I, III, V, VI
B II, III, V, VI
C II, III, IV, V
D III, IV, V, VI
2. One of the parties to the initial flotation of a company is often known as the promoter. Which of the following
statements best describes the role or function of the promoter?
A The manager of the sub-underwriting panel or group
B The broker responsible for the initial sale of shares to investors
C The party seeking the flotation of the company
D The agency responsible for marketing the issue to the public
3. Ordinary shares in limited liability companies are the major source of external equity funding for Australian
companies. Which of the following statements regarding the issuance of ordinary shares by a newly listing
limited liability company is not correct?
A The public company is incorporated with an authorised share capital
B Shares may only be issued on a fully paid basis
C Shares may be priced on issue at par, or at a premium above par
D Usually, not all shares authorised in the Memorandum of Association are issued
4. Which of the following requirements does not apply to a company seeking admission for public listing on the
Australian Stock Exchange:
A The entity must satisfy either the profit test or the net tangible assets test;
B Must have at least 500 holders of a parcel of main class securities valued at least $2000;
C Must issue a prospectus which is to be lodged with the Australian Stock Exchange;
D Have a structure and operation appropriate for a listed entity;
5. A company may seek to raise further funds by issuing additional ordinary shares. The terms of the new share
issue are determined by the board of directors, in consultation with its financial advisers and others, and
having regard to the preferences of existing shareholders and the needs of the company. Which of the following
is least likely to be a determinant of the price that is eventually struck?
A The discount to current market price that can be offered to shareholders
B The company’s cash requirements
C The projected earnings flows from the new investments
D The cost of alternative funding sources
6. Share placements may, subject to compliance with certain regulations, be made to institutional investors.
Which of the following conditions is not a requirement of the Australian Securities and Investment Commission
in relation to share placements?
A The placement consist of minimum subscriptions of $500 000, or be made up of not more than 20
participants
B Discount from current market price must not be excessive
C In no circumstance are placements in excess of 10% of issued shares permitted
D No need to register a prospectus, but a memorandum of information detailing the company’s activities must
be sent to all participants
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Document Summary
Chapter 5 - multiple choice questions: prudent financial management would dictate that a company should not take on more debt than can be serviced, under pessimistic conditions, without jeopardy to the company"s existence. Therefore a proportion of total funding should be provided by equity participants. Iii history of the ratio for the firm. Iv the stage of the current economic cycle. D iii, iv, v, vi: one of the parties to the initial flotation of a company is often known as the promoter. A the manager of the sub-underwriting panel or group. B the broker responsible for the initial sale of shares to investors. C the party seeking the flotation of the company. D the agency responsible for marketing the issue to the public: ordinary shares in limited liability companies are the major source of external equity funding for australian companies. A the public company is incorporated with an authorised share capital.
