Advanced Corporate Finance – Exam 2, Lecture Notes, 2026 – Study Material and
Practice Questions
cumulative - correct answer ✔✔ a protective feature on preferred stock that requires preferred
dividends previously not paid to be paid before any common dividends can be paid
arrearages - correct answer ✔✔ unpaid preferred dividends
adjustable rate preferred stock - correct answer ✔✔ preferred stock with a dividend that is
adjusted at regular interval
sale and leaseback - correct answer ✔✔ an arrangement whereby a firm sells land, buildings, or
equipment and simultaneously leases the property back for a specified period under specific
terms
lessee - correct answer ✔✔ the party that uses, rather than the one who owns the leased
property
lessor - correct answer ✔✔ the owner of the leased property
operating lease - correct answer ✔✔ a lease under which the lessor maintains and finances the
property; also called a services lease
financial lease - correct answer ✔✔ a lease that does not provide for maintenance services, is
not cancelable and is full amortized its life; also called a capital
off balance sheet financing - correct answer ✔✔ financing in which the assets and liabilities
involved do not appear on the firm's balance sheet
, SFAS #13 - correct answer ✔✔ statement of financial accounting standards issued by the
financial accounting standards board that details the conditions and procedures for capitalizing
leases
residual value - correct answer ✔✔ the value of leased property at the end of the lease term
warrant - correct answer ✔✔ a long-term option to buy a stated number of shares of common
stock at a specified price
detachable warrant - correct answer ✔✔ a warrant that can be detached from a bond and
traded independently of the bond
stepped up exercise price - correct answer ✔✔ an exercise price that is specified to rise if
warrant is exercised after a designated date
convertible security - correct answer ✔✔ a security usually a bond or preferred stock that can
be exchanged at the option of the holder for the common stock of the issuing firm
conversion ratio - correct answer ✔✔ the number of shares of common stock that are obtained
by converting a convertible bond or share of convertible preferred stock
conversion price - correct answer ✔✔ the effective price paid for common stock obtained by
converting a convertible security
conversion value - correct answer ✔✔ the value of common stock obtained by converting a
convertible security
multinational corporation - correct answer ✔✔ a firm that operates in an integrated fashion in a
number of countries
Practice Questions
cumulative - correct answer ✔✔ a protective feature on preferred stock that requires preferred
dividends previously not paid to be paid before any common dividends can be paid
arrearages - correct answer ✔✔ unpaid preferred dividends
adjustable rate preferred stock - correct answer ✔✔ preferred stock with a dividend that is
adjusted at regular interval
sale and leaseback - correct answer ✔✔ an arrangement whereby a firm sells land, buildings, or
equipment and simultaneously leases the property back for a specified period under specific
terms
lessee - correct answer ✔✔ the party that uses, rather than the one who owns the leased
property
lessor - correct answer ✔✔ the owner of the leased property
operating lease - correct answer ✔✔ a lease under which the lessor maintains and finances the
property; also called a services lease
financial lease - correct answer ✔✔ a lease that does not provide for maintenance services, is
not cancelable and is full amortized its life; also called a capital
off balance sheet financing - correct answer ✔✔ financing in which the assets and liabilities
involved do not appear on the firm's balance sheet
, SFAS #13 - correct answer ✔✔ statement of financial accounting standards issued by the
financial accounting standards board that details the conditions and procedures for capitalizing
leases
residual value - correct answer ✔✔ the value of leased property at the end of the lease term
warrant - correct answer ✔✔ a long-term option to buy a stated number of shares of common
stock at a specified price
detachable warrant - correct answer ✔✔ a warrant that can be detached from a bond and
traded independently of the bond
stepped up exercise price - correct answer ✔✔ an exercise price that is specified to rise if
warrant is exercised after a designated date
convertible security - correct answer ✔✔ a security usually a bond or preferred stock that can
be exchanged at the option of the holder for the common stock of the issuing firm
conversion ratio - correct answer ✔✔ the number of shares of common stock that are obtained
by converting a convertible bond or share of convertible preferred stock
conversion price - correct answer ✔✔ the effective price paid for common stock obtained by
converting a convertible security
conversion value - correct answer ✔✔ the value of common stock obtained by converting a
convertible security
multinational corporation - correct answer ✔✔ a firm that operates in an integrated fashion in a
number of countries
