Oxford University Press | Online Resource Centre

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Question 01

When a company sells its shares to the public for the first time, this is known as an IPO. What does IPO stand for?

a) Initial Public Offering

b) International Purchase Order

c) Internal Public Offer

d) International Purchase Offer

Question 02

If a share sale is underwritten, this means that:

a) the shares are being sold too cheaply.

b) the shares are being sold at less than their nominal value.

c) the public have offered less than the company's selling price for the shares.

d) shares not bought by the public will be bought by underwriters.

Question 03

What is the significance of a preference share being described as cumulative?

a) Dividends will always be paid on such shares

b) Each year, the dividend per share increases

c) If the company can't afford to pay a dividend one year, the missed dividend can be paid out of future years' profits

d) The dividends will always be greater than those paid on the ordinary shares

Question 04

A company has seen its share price rise from £1 to £40, and smaller potential investors are complaining that this is affecting their ability to buy shares in the company. Which one of the following might overcome this problem?

a) A share split

b) A share consolidation

c) Issuing stock options

d) A share buy-back

Question 05

If a '5 for 3' rights issue is made at £1.90 per share, How much would a shareholder who owns 15,000 shares pay to the company to buy all the shares he is entitled to?

a) £28,500

b) £17,100

c) £47,500

d) £5,700

Question 06

If a '3 for 2' bonus issue is made to a shareholder who originally paid £2 per share for 10,000 shares, how much would the shareholder pay for the bonus shares if the current market value is £4 per share?

a) £30,000

b) £60,000

c) £45,000

d) Nothing - the shares are free

Question 07

A company has given its managing director the option to buy 10,000 shares at £3 each in five years' time. The current share price is £1 and the nominal value is 50p. How much profit would the director make if he exercised his option at a time when the share price had risen to £6 and he immediately sold the shares at that price?

a) £30,000

b) £20,000

c) £50,000

d) £55,000

Question 08

Shares 'bought back' by a company are referred to on a balance sheet as:

a) options.

b) buy-back shares.

c) treasury shareconverted shares.converted shares.s.

d) converted shares.

Question 09

If a company has redeemed part of its share capital, and has not at the same time replaced the shares by a new issue, it must transfer distributable reserves into:

a) profit and loss account.

b) share premium account.

c) an asset revaluation reserve.

d) a capital redemption reserve.

Question 10

A company has issued 2m shares at £3.50 each. The nominal value of each share is 50p, and the stock market price is £5. What entries must be made on the balance sheet to record this share issue?

a) Share capital increases by £7m, Share Premium Account increases by £1m

b) Share capital increases by £1m, Share Premium Account increases by £6m

c) Share capital increases by £9m, Share Premium Account increases by £1m

d) Share capital increases by £6m, Share Premium Account increases by £1m

Oxford University Press, Online Resource Centre, Chapter 08.

Chapter 08

Instructions