Free CMA Exam Braindumps (page: 160)

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A major use of warrants in financing is to

  1. Lower the cost of debt
  2. Avoid dilution of earnings per share.
  3. Maintain managerial control.
  4. Permit the buy-back of bonds before maturity

Answer(s): A

Explanation:

Warrants are long-term options that give holders the ghetto buy common stock in the future at a specific price. If the market price goes up, the holders of warrants will exercise their rights to buy stock at the special price. If the market price does not exceed the exercise price, the warrants will lapse. Issuers of debt sometimes attach stock purchase warrants to debt instruments as an inducement to investors. The investor then has the specialty of fixed- return debt plus the possibility for large gains if stock prices increase significantly, W warrants are attached, debt can sell at an interest rate slightly lower than the market rate



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A technique used by stock promoters to combine several small businesses in the same industry into a company large enough to initiate an initial pubic offering (IPO) is a

  1. Sale-leaseback.
  2. Roll-up.
  3. DRIP.
  4. ESOP

Answer(s): B

Explanation:

A roll-up is a technique used by an underwriter to combine several mom-and-pop type businesses in the same industry into a company large enough for an IPO.



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Gait Cost Magnetic Croatian (GCMC) is negotiating an intermediate-term loan to tenancy a jilt project with another comparer GCMC intends k sell its share of nature to its partner after 6 years. The lending bank has therefore agreed to structure the loan with a bacon payment at that time The amount of the loan is $100,000 GCMC will make level quarterly payments at an annual rate of 8%. Because the loan is to be only partially amortized, the payments are based on a full amortization life of 10 years Which one of the following statements in regard to this loan is true? (Round your answer to the nearest dollar.)

  1. The quarterly payment is $3,726.
  2. The quarterly payment is $5.288.
  3. The balloon payment is $12,107.
  4. The balloon payment is $49,636

Answer(s): D

Explanation:

The level quarterly payments based on a full-amortization life of 10 years constitute an annuity well a present value of $100,000. Assuming payments are due at the end of each quarter, the payment equals $100,000 divided by the present value interest factor for an ordinary annuity of 40 pentodes (4 x 10 years) at 2% (8% + 4), or $3,655.64 ($100,000 27355). The balloon payment is the present value of the remaining payments. R equals the quarterly payment times the present value interest factor for an ordinary annuity of 16 periods [(10 years --6 years) x 4] at 2% (8% · 4). or $49,636 ($3,655.64 x 13.578).



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The characteristics of Venture capital include all of the following except

  1. Initial pinnate placement for the majority of issues
  2. A minimum holding period of 5 years for new securities
  3. The use of common stock for most placements.
  4. A lack of humidity for a period of time.

Answer(s): B

Explanation:

The concept of venture (risk) capital appestat new enterprises that might not be able to obtain funds in the usual capital markets because of the friskiness Of new products, Such companies somberness toy to place `scantiest. normality common stock, with venture captive firms. These are normally private percents of the securities and thus not subject to SEC regulator. The venture capitalists risk low liquidity for their investments until the young `corporation becomes successful. The payoff may be substantial if the company does succeed There is no minimum holding period for venture capital investments,



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