Chapter 1 Practice Question Answers
- 1. Answer: C. Common stockholders may have the right to maintain their proportionate share of the company if more shares are issued. Holders of common stock have voting rights as a privilege of ownership. They vote to elect the corporate board of directors and often have the right to approve corporate resolutions, such as stock splits, mergers and acquisitions, and changes of business direction. They also have the right to inspect the books and records of the company. They do not have the right to vote on whether to declare a dividend. Instead, the board of directors declares the dividend.
- 2. Answer: D. Common stockholders have the right to transfer their shares to someone else. Holders of common stock have the right to vote on relevant matters, such as mergers and acquisitions. Common stockholders have the right to access records, including the minutes from the board of directors’ meeting. Common stockholders do not have the right to receive their dividends before preferred shareholders.
- 3. Answer: D. In cumulative voting, shareholders may vote their total voting shares (number of shares multiplied by number of candidates) for a single candidate.
600 votes per position x 3 positions = 1,800 votes
- 4. Answer: A. Treasury shares represent shares of issued stock that have been repurchased by the company and removed from public circulation. Treasury stock pays no dividends and has no voting rights.
- 5. Answer: B. To arrive at the outstanding shares, start with the number of issued shares and subtract the number of treasury shares (40 million – 5 million = 35 million). To calculate the market capitalization, multiply the shares outstanding by the market price (35 million x $20 = $700 million).
- 6. Answer: C. Stocks can be held as stock certificates, direct registration, or in street name. When stocks are held in street name, the brokerage is the legal owne