Which of the Following Statements Concerning Common Stock and the Investment

question 14

Multiple Choice

Which of the following statements concerning common stock and the investment banking process is false?

• A) The preemptive right gives each existing common stockholder the right to purchase his or her proportionate share of a new stock issue.
• B) If a firm sells 1,000,000 new shares of Class B stock,the transaction occurs in the primary market.
• C) Listing a large firm's stock is often considered to be beneficial to stockholders because the increases in liquidity and status probably outweigh the additional costs to the firm.
• D) Stockholders have the right to elect the firm's directors,who in turn select the officers who manage the business.If stockholders are dissatisfied with management's performance,an outside group may ask the stockholders to vote for it in an effort to take control of the business.This action is called a margin call.
• E) A large issue of new stock could cause the stock price to fall.This loss is called "market pressure," and it is treated as a flotation cost because it is a cost associated with the new issue.

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Definitions:

LIFO Reserve

The difference between the cost of inventory calculated using the Last In, First Out (LIFO) method and the cost calculated using the First In, First Out (FIFO) method.

FIFO Assumption

An accounting method where the first items purchased or produced are the first ones used or sold.

LIFO Reserve

The difference in value between inventory calculated using the Last-In, First-Out (LIFO) method and the First-In, First-Out (FIFO) method, used to adjust COGS and inventory valuation.

Cost of Goods Sold

An accounting term for the direct costs attributable to the production of the goods sold by a company, including materials and labor.