A corporation that is not taxable issues preferred stock to lower their financing costs because Blank______. Multiple choice question. a new issue of preferred stock decreases the total equity of the firm a new issue of preferred stock does not affect the debt-to-equity ratio of the firm preferred dividends are significantly lower than interest payments preferred dividends are non-taxable, whereas interests are taxable

A corporation that is not taxable issues preferred stock to lower their financing costs because Blank______. Multiple choice question. a new issue of preferred stock decreases the total equity of the firm a new issue of preferred stock does not affect the debt-to-equity ratio of the firm preferred dividends are significantly lower than interest payments preferred dividends are non-taxable, whereas interests are taxable

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter15: Shareholders’ Equity: Capital Contributions And Distributions

Section: Chapter Questions

Problem 10Q

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A corporation that is not taxable issues preferred stock to lower their financing costs because Blank______. Multiple choice question. preferred dividends are non-taxable, whereas interests are taxable preferred dividends are significantly lower than interest payments a new issue of preferred stock does not affect the debt-to-equity ratio of the firm a new issue of preferred stock decreases the total equity of the firm
* Your answer is incorrect. A company may repurchase its own shares for all of the following reasons, except O to reduce the number of shares issued and thereby increase earnings per share and return on equity. to have additional shares available for use in the acquisition of other companies. O to attempt to influence the market price of the shares. O to reduce the number of shares issued in order to meet debt to equity bank covenant requirements.
A firm’s preferred stock often sells at yields below its bonds because:a. Preferred stock generally carries a higher agency rating.b. Owners of preferred stock have a prior claim on the firm’s earnings.c. Owners of preferred stock have a prior claim on a firm’s assets in the event of liquidation.d. Corporations owning stock may exclude from income taxes most of the dividend income they receive.
When a stock repurchase occurs, which of the following is not correct?a. EPS decreasesb. Shares are repurchased then cancelledc. Investors may regard this as a tax break compared to a dividend paymentd. Costs in servicing small shareholders may be reducede. All of the above are correct
2. Which of the following is a characteristic of preferred stock?A. Give voting rights to its owner.B. It is like annuity.C. Investors cannot force the payment of the dividend.D. Dividends are tax-deductible for the firm as opposed to interest payment.
Which of the following statements concerning common stock and the investment banking process is NOT CORRECT? a. The preemptive right gives each existing common stockholder the right to purchase his or her proportionate share of a new stock issue. b. The announcement of 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 to stockholders that is associated with the new issue. c. If a firm sells 1,000,000 new shares of Class B stock, the transaction occurs in the primary market. d. Listing a large firm's stock is often considered to be beneficial to stockholders because the increases in liquidity and reputation probably outweigh the additional costs to the firm. e. 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…
Indicate whether the following statements are true or false. If the statementis false, explain why.a. If a firm repurchases its stock in the open market, the shareholders whotender the stock are subject to capital gains taxes.
1)Which of theAllowing is an advantage for a firm to issue common stock over long-term debt? 1 point A) the cost of equity financing being less than the cost of debt financing B) the primary claim of equityholders on income and assets in the event of liquidation C) no maturity date on which the par value of the issue must be repaid D) the tax deductibility of dividends which lowers the cost of equity financing 2) Which of the following is a difference between common stock and bonds? 1 point A) Bondholders have a voice in management; common stockholders do not. B) Bondholders have a senior claim on assets and income relative to stockholders. C) Stocks have a stated maturity but bonds do not. D) Dividend paid to stockholders is tax-deductible but interest paid to bondholders are not 3) Holders of equity capital ________. 1 point A) own the firm B) receive interest payments C) receive guaranteed income D) have loaned money to the firm 4)Because equityholders are the last to receive any…
Preferred stock may be good for a company because it a. is not as costly as common stock or bonds. b. expands the capital base of the firm without diluting the common stock ownership. c. has no future negative ramifications when dividend payments are missed. d. does not require interest payment in times of financial trouble, but are tax-deductible when dividends are paid.
Which of the following are the advantages of issuing preferred stock over debt? More than one answer may be correct. Multiple select question. Preferred dividends are non-taxable, whereas interest income is taxable. Preferred shareholders cannot force a corporation into bankruptcy because of unpaid dividends. Firms issuing preferred stock can avoid the threat of bankruptcy. Unpaid preferred dividends are not debts of a corporation. Preferred dividend increases the earnings per share (EPS) of a firm, whereas interest on debt decreases the EPS of a firm.
Which of the following statements are true of preferred dividends? More than one answer may be correct. Multiple select question. Preferred dividends are like interest on a bond. Companies have no obligation to pay the dividends on preferred shares. Directors elected by common shareholders cannot defer preferred dividends indefinitely. Unpaid preferred dividends are not debts of the firm
Which of the following statements is incorrect? Issued shares of stocks include those that have been at one time been sold to the public and which have been subsequently retired. If an entity’s capital stock is retired, the Share Capital account is reduced by its par value, the number of shares is reduced by the stock retired and the treasury stock is credited at cost. Treasury shares may be reissued as dividends, in which case the cost of the shares should be charged to Retained Earnings. Though may be used in computing for the Share Capital, stated value is not similar to par value of stock.