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

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 3MC

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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 is not true of preference shares? * A. Payment of dividends is mandatory if cumulative. B. Preference shares are convertible to ordinary shares or bonds. C. It is similar to debt financing in terms of limited cost payment. D. Cost is higher than cost of bonds.
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…
Please answer with reason why the option is correct and why the other options are not correct
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.
1. How many of the following is/are advantage(s) of issuing bonds to raise capital? (A) Does not require interest payment when the entity is incurring severe losses; (B) Generally requires fixed interest payments which can easily be used in budgeting; (C) Interest is a tax-deductible expense.2. How many of the following is/are advantage(s) of issuing ordinary shares to raise capital? (A) No contractual obligation to pay dividends; (B) Presence of easily determinable maturity date; (C) Dividends are tax-deductible expenses.3. Which is true in these statements? Share warrants are often attached to debt instruments to entice creditors to also become ordinary shareholders especially when the entity would be unable to pay interests. [S2] An entity needing a large sum of financing would prefer issuing bonds with share warrants over bonds with conversion rights.4. Which is true in these statements? [S1] When unrelated traders buy and sell stocks, the entity which issued the shares will be…
The cost of preferred stock Preferred stock is a hybrid security, because it has some characteristics typical of debt and others typical of equity. The following table lists various characteristics of preferred stock. Determine which of these characteristics is consistent with debt and which is consistent with equity. Characteristics Debt Equity Has a par, or face, value. No tax adjustments are made when calculating the cost of preferred stock. Consider the case of Ferro Enterprises: At the present time, Ferro Enterprises does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Ferro has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $15 per share. If the investors pay $142.73 per share for their investment, then Ferro’s cost of preferred stock (rounded to four decimal…
In the context of choosing a share repurchase over declaring dividends, a share repurchase would *a. Decrease available financing whereas declaring dividends increase available financing.b. Increase earnings per share by decreasing the number of shares outstanding.c. Decrease earnings per share by decreasing dividends payabled. invlove all shareholders.
Companies are more apt to choose repurchases over dividends if doing so will enable them to I. take advantage of a market undervaluation of their shares. II. maintain or increase the value of executive stock options. III. offset the dilution created by the exercise of executive stock options. IV. distribute revenue increases that are considered temporary or short-term in nature.
Preferred stock is a hybrid security, because it has some characteristics typical of debt and others typical of equity. The following table lists various characteristics of preferred stock. Determine which of these characteristics is consistent with debt and which is consistent with equity. Characteristics Debt Equity Usually has no voting rights. No tax adjustments are made when calculating the cost of preferred stock. Consider the case of Tamin Enterprises: At the present time, Tamin Enterprises does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Tamin has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $12 per share. If the investors pay $98.90 per share for their investment, then Tamin’s cost of preferred stock (rounded to four decimal places) will be .