Common Stock Flashcards
Which of the following statements are TRUE regarding Treasury Stock?
I Treasury Stock receives dividends
II Treasury Stock votes
III Treasury Stock reduces the number of shares outstanding
IV Treasury Stock purchases are used to increase reported Earnings Per Share
A. I and II
B. III and IV
C. II, III, IV
D. I, II, III, IV
The best answer is B.
Treasury stock does not vote nor receive dividends. Treasury stock is deducted from outstanding shares, and since outstanding shares are reduced, Earnings Per Share increases.
If a company repurchases its own common shares, the number of:
A. outstanding shares will decrease
B. outstanding shares will increase
C. issued shares will decrease
D. unissued shares will increase
The best answer is A.
If a company repurchases shares, the number of outstanding shares decreases.
A corporation has issued 20,000,000 shares of common stock at $2 par. The corporation has 5,000,000 shares of Treasury Stock on its books. The aggregate value of the outstanding shares is:
A. $10,000,000
B. $30,000,000
C. $40,000,000
D. $50,000,000
The best answer is B.
Outstanding stock is: Issued stock (20,000,000 shares) - Treasury stock (5,000,000 shares) = 15,000,000 shares outstanding at $2 par = $30,000,000 value.
A corporation has issued 50,000,000 shares of common stock at $.50 par. The corporation has 10,000,000 shares of Treasury Stock on its books. The aggregate par value of the outstanding shares is:
A. $20,000,000
B. $40,000,000
C. $80,000,000
D. $100,000,000
The best answer is A.
Outstanding stock is: Issued stock (50,000,000 shares) minus Treasury stock (10,000,000 shares) = 40,000,000 shares outstanding at $.50 par = $20,000,000.
The transfer agent will typically perform which of the following functions?
I Canceling old stock certificates
II Issuing new stock certificates
III Acting as disbursement agent for the corporation
IV Maintaining the integrity of the record of all shareholder names and addresses
A. I and II only
B. III and IV only
C. I, II, III
D. I, II, III, IV
The best answer is C.
It is the responsibility of the registrar to maintain the integrity of the shareholder list, and to ensure that the number of shares transferred from one shareholder to another always matches. The transfer agent will cancel old shares, issue new shares, and act as disbursement agent for the corporation.
Which of the following are TRUE statements regarding the activities of the registrar?
I The registrar cancels old shares
II The registrar transfers shares to new owners
III The registrar accounts for the number of shares issued
IV The registrar keeps the integrity of the shareholder record
A. I and II
B. II and IV
C. III and IV
D. I, II, III, IV
The best answer is C.
The transfer agent cancels old shares and issues new shares, keeping a record of current shareholder names and addresses. The registrar ensures that all shares are properly accounted for and also verifies the integrity of the record of shareholders’ names and addresses.
FINRA sets which date?
A. Declaration date
B. Record date
C. Ex date
D. Payable date
The best answer is C.
The ex date is set by FINRA (the self regulatory organization or SRO that oversees the securities markets in the U.S.) once the Board of Directors sets the Record date. The Board of Directors, when it announces a dividend, sets the Declaration date, Record date, and Payable date.
ABC Corporation has declared a cash dividend to stockholders of record on Monday, November 21st. The last day to buy ABC shares BEFORE they go ex dividend is?
A. Wednesday, November 16th
B. Thursday, November 17th
C. Friday, November 18th
D. Sunday, November 20th
The best answer is B.
The regular way ex date is 1 business day prior to the record date. The record date is Monday, November 21st, therefore the ex date is Friday, November 18th. To buy the shares before they go ex dividend, the shares must be purchased before Friday, November 18th, meaning they must be purchased on Thursday, November 17th.
A customer owns 400 shares of ABC stock. ABC is having a rights offering where 20 rights are needed to subscribe to 1 new share. How many new shares can the customer purchase through this rights offering?
A. 1 share
B. 20 shares
C. 100 shares
D. 400 shares
The best answer is B.
The question asks how many additional shares can be purchased, not how many rights the customer has. The customer has 400 shares, and will receive 1 right for each share, so the customer has 400 rights. Since 20 rights are needed to subscribe to 1 new share, this allows the purchase of 20 new shares.
Which of the following statements are TRUE regarding the rights agent?
I The rights agent usually handles the mechanics of a rights offering
II The rights agent is usually the existing transfer agent of the issuer
III The rights agent issues the additional shares upon presentation of the rights certificates with payment
A. I only
B. I and II
C. II and III
D. I, II, III
The best answer is D.
A rights agent is hired to handle the mechanics of a rights offering. The rights agent is usually the existing transfer agent of the issuer. To subscribe, the existing shareholders submit their rights with the subscription dollar amount to the rights agent.
In a rights offering, shareholders who subscribe make payment to the:
A. stand-by underwriter
B. rights agent for the issuer
C. brokerage firm
D. trustee
The best answer is B.
In a rights offering, a company is attempting to sell additional shares directly to its existing shareholders. The company hires a “rights agent” to handle the mechanics of the offer, typically a commercial bank.
PDQ Corporation has declared a rights offering to stockholders of record. The company has 5,000,000 shares outstanding and is selling an additional 1,000,000 shares via the rights offer. Which statements are TRUE regarding a customer who owns 500 shares of PDQ stock?
I The customer will receive 100 rights
II The customer will receive 500 rights
III The customer may buy 100 shares
IV The customer may buy 500 shares
A. I and III
B. I and IV
C. II and III
D. II and IV
The best answer is C.
Each outstanding share gets 1 right, so there will be 5,000,000 rights issued / 1,000,000 new shares = 5 rights needed to buy 1 new share. The customer who owns 500 shares gets 500 rights. Since 5 rights are needed to buy 1 new share, the customer can buy 100 additional shares.
ABC Corporation has declared a rights offering to stockholders of record on Friday, December 10th. Under the offer, shareholders need 10 rights to subscribe to 1 new share at a price of $19. Fractional shares can be rounded up to purchase 1 full share. As of the ex date, the stock is trading at $24. The value of the right is:
A. $.45
B. $.50
C. $.55
D. $1.00
The best answer is B.
The value of a right “ex rights” is:
Adjusted Market Price - Subscription Price Value
————————————————————– = “Ex Rights”
N
$24 - $19 $5
————- = ——- = $.50 Value “Ex Rights”
10 10
Notice that the market price of $24 was already adjusted on the ex date by the exchange where the stock trades. Do not try and reduce the price again!
A company that has been growing rapidly announces that it is splitting its stock 3:2 and increasing its cash dividend by 10%. Prior to the announcement, the stock was trading at $60 and the dividend yield was 8%. What will be the next dividend paid per share?
A. $.80
B. $.88
C. $1.20
D. $1.32
The best answer is B.
Another question that is more annoying than difficult. When the stock was trading at $60, it was paying an annual cash dividend of 8% of $60 = $4.80 per share. After the 3:2 split, for every 2 shares held, there will now be 3 shares. This is the same as 1.5:1. The new share price will be $60 / 1.5 = $40. The new annual dividend amount per share before the increase will be $4.80 / 1.5 = $3.20. If this dividend is increased by 10%, the new annual rate will be $3.52, and the new quarterly dividend payment per share will be $3.52 / 4 = $.88.
A company that has been growing rapidly announces that it is splitting its stock 3:2 and increasing its cash dividend by 20%. Prior to the announcement, the stock was trading at $60 and the dividend yield was 10%. What will be the next dividend paid per share?
A. $.90
B. $1.00
C. $1.10
D. $1.20
The best answer is D.
Another question that is more annoying than difficult. When the stock was trading at $60, it was paying an annual cash dividend of 10% of $60 = $6.00 per share. After the 3:2 split, for every 2 shares held, there will now be 3 shares. This is the same as 1.5:1. The new share price will be $60 / 1.5 = $40. The new annual dividend amount per share before the increase will be $6.00 / 1.5 = $4.00. If this dividend is increased by 20%, the new annual rate will be $4.80, and the new quarterly dividend payment per share will be $4.80 / 4 = $1.20
