Question 1

The right to sell a specified asset at a specified price up until a specified date is called a(n) :

Accepted Answer

A)  American-style put option
B)  American-style call option
C)  European-style call option
D)  European-style put optionE) None of the above
F) B) and C)

Question 2

Which of the following is not a type of option?

Accepted Answer

A)  call option
B)  put option
C)  warrant
D)  leveraged buyoutE) B) and C)
F) All of the above

Question 3

An option that can be exercised only at a specific set of dates is called a(n) :

Accepted Answer

A)  Asian-style option
B)  American-style option
C)  European-style option
D)  Bermuda-style optionE) None of the above
F) A) and B)

Question 4

The right for existing owners to maintain their ownership share by purchasing sufficient shares to keep their percentage share of the firm is called:

Accepted Answer

A)  a stock option
B)  a stock warrant
C)  preemptive rights
D)  participating stockE) B) and D)
F) B) and C)

Question 5

The Black and Scholes model requires the stock price as an input.

Accepted Answer

A) True 
 B)False

Question 6

Registration rights embedded in a venture's securities grant certain classes of shareholders the right, under certain circumstances, to have their securities registered with the SEC.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following has the least senior claim on a venture's asset?

Accepted Answer

A)  common stock
B)  preferred stock
C)  convertible preferred stock
D)  convertible debtE) A) and B)
F) B) and D)

Question 8

The value of a warrant can be directly derived from the value of a call option.

Accepted Answer

A) True 
 B)False

Question 9

To calculate the enterprise valuation cash flow, one begins with which of the following items from the income statement?

Accepted Answer

A)  Net Sales ÷ Net Income
B)  Operating Profit ÷ Gross Sales
C)  Earnings Before Interest and Taxes) × (1 - Enterprise Tax Rate) 
D)  Net Income × Enterprise Tax RateE) A) and D)
F) A) and C)

Question 10

Convertible debt can have all of the following characteristics except :

Accepted Answer

A)  bankruptcy rights
B)  regular dividend payments
C)  a structure to provide senior interest in specific assets
D)  a tax shield due to interest expenseE) C) and D)
F) All of the above

Question 11

An option that can be exercised at any time until its expiration is called a(n) :

Accepted Answer

A)  Asian-style option
B)  American-style option
C)  European-style option
D)  Bermuda-style optionE) B) and C)
F) None of the above

Question 12

Which of the following provides the option to transform preferred stock into common stock?

Accepted Answer

A)  paid in kind preferred stock
B)  cumulative preferred stock
C)  participating preferred stock
D)  convertible preferred stockE) C) and D)
F) None of the above

Question 13

An option is a right to buy or sell additional shares of stock.

Accepted Answer

A) True 
 B)False

Question 14

Piggyback registration rights allow holders of convertible securities to "vote as if converted."

Accepted Answer

A) True 
 B)False

Question 15

If a share of preferred stock has a $10 par value, and the stock has a 2:1 conversion ratio, then the conversion price would be $5.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is an example of a call option that is "in the money"?

Accepted Answer

A)  option to sell at $11, stock is worth $12
B)  option to buy at $13, stock is worth $12
C)  option to sell at $13, stock is worth $12
D)  option to buy at $11, stock is worth $12E) All of the above
F) None of the above

Question 17

The concept of an enterprise value is that it is the combined value of all of venture's financing, typically equity plus all of the debt.

Accepted Answer

A) True 
 B)False

Question 18

The enterprise method of valuation can be executed with either an after-tax or before-tax weighted average cost of capital as long as the rate is applied to the appropriate enterprise cash flows.

Accepted Answer

A) True 
 B)False

Question 19

Owning a put option on a stock is the same as selling a call option on that same stock.

Accepted Answer

A) True 
 B)False

Question 20

For American and Bermudan embedded options, the exercise price can change over time as specified in the security agreement.

Accepted Answer

A) True 
 B)False

Exam 14: Security Structures and Determining Enterprise Values

The Black and Scholes model requires the stock price as an input.

Correct AnswerverifiedShow Answer

Registration rights embedded in a venture's securities grant certain classes of shareholders the right, under certain circumstances, to have their securities registered with the SEC.

Correct AnswerverifiedShow Answer

The concept of an enterprise value is that it is the combined value of all of venture's financing, typically equity plus all of the debt.

Correct AnswerverifiedShow Answer

For American and Bermudan embedded options, the exercise price can change over time as specified in the security agreement.

Correct AnswerverifiedShow Answer

The value of a warrant can be directly derived from the value of a call option.

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Which of the following has the least senior claim on a venture's asset?

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The right for existing owners to maintain their ownership share by purchasing sufficient shares to keep their percentage share of the firm is called:

Correct AnswerverifiedShow Answer

Convertible debt can have all of the following characteristics except :

Correct AnswerverifiedShow Answer

The enterprise method of valuation can be executed with either an after-tax or before-tax weighted average cost of capital as long as the rate is applied to the appropriate enterprise cash flows.

Correct AnswerverifiedShow Answer

Which of the following provides the option to transform preferred stock into common stock?

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An option that can be exercised only at a specific set of dates is called a(n) :

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To calculate the enterprise valuation cash flow, one begins with which of the following items from the income statement?

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An option is a right to buy or sell additional shares of stock.

Correct AnswerverifiedShow Answer

Piggyback registration rights allow holders of convertible securities to "vote as if converted."

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The right to sell a specified asset at a specified price up until a specified date is called a(n) :

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If a share of preferred stock has a $10 par value, and the stock has a 2:1 conversion ratio, then the conversion price would be $5.

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Which of the following is not a type of option?

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An option that can be exercised at any time until its expiration is called a(n) :

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Which of the following is an example of a call option that is "in the money"?

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Owning a put option on a stock is the same as selling a call option on that same stock.

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