The ways in which preferred stock is like long-term debt and equity. Introduction: The preferred stock is defined as the stock in which the holder of the stock has a fixed dividend and the payment of this stock has a higher priority in comparison of the ordinary share dividends.

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Answer 1

Question

Chapter 2, Problem 1PS

Summary Introduction

To determine: The ways in which preferred stock is like long-term debt and equity.

Introduction: The preferred stock is defined as the stock in which the holder of the stock has a fixed dividend and the payment of this stock has a higher priority in comparison of the ordinary share dividends.

Expert Solution & Answer

Explanation of Solution

The preferred stock act like a long-term debt because of the following points −

It acts like perpetuity in which it pays a fixed amount every year.
The holder of the preferred stock does not get any voting rights in the firm.

The preferred stock also acts like equity because of the following points −

The firm does not have any contractual obligation for the payment of the preferred stock dividend. If the firm is failure to make payment, then in this case, the firm cannot be declared bankrupt.
When the firm is declared bankrupt, then in this case preferred stock will have higher priority than the common equity but it will have lower priority than the bonds.

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Students have asked these similar questions

Need the WACC % WACC and Optimal Capital Structure F. Pierce Products Inc. is considering changing its capital structure. F. Pierce currently has no debt and no preferred stock, but it would like to add some debt to take advantage of the tax shield. Its investment banker has indicated that the pre-tax cost of debt under various possible capital structures would be as follows: Market Debt-to-Value Ratio (wd) Market Equity-to-Value Ratio (ws) Market Debt-toEquity Ratio (D/S) Before-Tax Cost ofDebt (rd) 0.0 1.0 0.00 6.0 % 0.10 0.90 0.1111 6.4 0.20 0.80 0.2500 7.0 0.30 0.70 0.4286 8.2 0.40 0.60 0.6667 10.0 F. Pierce uses the CAPM to estimate its cost of common equity, rs, and at the time of the analaysis the risk-free rate is 5%, the market risk premium is 7%, and the company's tax rate is 25%. F. Pierce estimates that its beta now (which is "unlevered" because it currently has no debt) is 1.4. Based on this information, what…

Ned's Co. has an average collection period of 45 days and an operating cycle of 130 days. It has a policy of keeping at least $10 on hand as a minimum cash balance, and has a beginning cash balance for the first quarter of $20. Beginning receivables for the quarter amount to $35. Sales for the first and second quarters are expected to be $110 and $125, respectively, while purchases amount to 80% of the next quarter's forecast sales. The accounts payable period is 90 days. What are the cash disbursements for the first quarter? Question 4 options: $92 $88 $76 $100 $110

Liberal credit terms for customers is associated with a restrictive short-term financial policy. Question 3 options: True False

Answer 2

Question

Chapter 2, Problem 1PS

Summary Introduction

To determine: The ways in which preferred stock is like long-term debt and equity.

Introduction: The preferred stock is defined as the stock in which the holder of the stock has a fixed dividend and the payment of this stock has a higher priority in comparison of the ordinary share dividends.

Expert Solution & Answer

Explanation of Solution

The preferred stock act like a long-term debt because of the following points −

It acts like perpetuity in which it pays a fixed amount every year.
The holder of the preferred stock does not get any voting rights in the firm.

The preferred stock also acts like equity because of the following points −

The firm does not have any contractual obligation for the payment of the preferred stock dividend. If the firm is failure to make payment, then in this case, the firm cannot be declared bankrupt.
When the firm is declared bankrupt, then in this case preferred stock will have higher priority than the common equity but it will have lower priority than the bonds.

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Answer 3

Question

Chapter 2, Problem 1PS

Summary Introduction

To determine: The ways in which preferred stock is like long-term debt and equity.

Introduction: The preferred stock is defined as the stock in which the holder of the stock has a fixed dividend and the payment of this stock has a higher priority in comparison of the ordinary share dividends.

Expert Solution & Answer

Explanation of Solution

The preferred stock act like a long-term debt because of the following points −

It acts like perpetuity in which it pays a fixed amount every year.
The holder of the preferred stock does not get any voting rights in the firm.

The preferred stock also acts like equity because of the following points −

The firm does not have any contractual obligation for the payment of the preferred stock dividend. If the firm is failure to make payment, then in this case, the firm cannot be declared bankrupt.
When the firm is declared bankrupt, then in this case preferred stock will have higher priority than the common equity but it will have lower priority than the bonds.

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Answer 4

Question

Chapter 2, Problem 1PS

Summary Introduction

To determine: The ways in which preferred stock is like long-term debt and equity.

Introduction: The preferred stock is defined as the stock in which the holder of the stock has a fixed dividend and the payment of this stock has a higher priority in comparison of the ordinary share dividends.

Expert Solution & Answer

Explanation of Solution

The preferred stock act like a long-term debt because of the following points −

It acts like perpetuity in which it pays a fixed amount every year.
The holder of the preferred stock does not get any voting rights in the firm.

The preferred stock also acts like equity because of the following points −

The firm does not have any contractual obligation for the payment of the preferred stock dividend. If the firm is failure to make payment, then in this case, the firm cannot be declared bankrupt.
When the firm is declared bankrupt, then in this case preferred stock will have higher priority than the common equity but it will have lower priority than the bonds.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 2, Problem 1PS

Summary Introduction

To determine: The ways in which preferred stock is like long-term debt and equity.

Introduction: The preferred stock is defined as the stock in which the holder of the stock has a fixed dividend and the payment of this stock has a higher priority in comparison of the ordinary share dividends.

Expert Solution & Answer

Explanation of Solution

The preferred stock act like a long-term debt because of the following points −

It acts like perpetuity in which it pays a fixed amount every year.
The holder of the preferred stock does not get any voting rights in the firm.

The preferred stock also acts like equity because of the following points −

The firm does not have any contractual obligation for the payment of the preferred stock dividend. If the firm is failure to make payment, then in this case, the firm cannot be declared bankrupt.
When the firm is declared bankrupt, then in this case preferred stock will have higher priority than the common equity but it will have lower priority than the bonds.

Answer 6

Chapter 2, Problem 1PS

Summary Introduction

To determine: The ways in which preferred stock is like long-term debt and equity.

Introduction: The preferred stock is defined as the stock in which the holder of the stock has a fixed dividend and the payment of this stock has a higher priority in comparison of the ordinary share dividends.

Expert Solution & Answer

Explanation of Solution

The preferred stock act like a long-term debt because of the following points −

It acts like perpetuity in which it pays a fixed amount every year.
The holder of the preferred stock does not get any voting rights in the firm.

The preferred stock also acts like equity because of the following points −

The firm does not have any contractual obligation for the payment of the preferred stock dividend. If the firm is failure to make payment, then in this case, the firm cannot be declared bankrupt.
When the firm is declared bankrupt, then in this case preferred stock will have higher priority than the common equity but it will have lower priority than the bonds.

Answer 7

Chapter 2, Problem 1PS

Summary Introduction

To determine: The ways in which preferred stock is like long-term debt and equity.

Introduction: The preferred stock is defined as the stock in which the holder of the stock has a fixed dividend and the payment of this stock has a higher priority in comparison of the ordinary share dividends.

Answer 8

Expert Solution & Answer

Explanation of Solution

The preferred stock act like a long-term debt because of the following points −

It acts like perpetuity in which it pays a fixed amount every year.
The holder of the preferred stock does not get any voting rights in the firm.

The preferred stock also acts like equity because of the following points −

The firm does not have any contractual obligation for the payment of the preferred stock dividend. If the firm is failure to make payment, then in this case, the firm cannot be declared bankrupt.
When the firm is declared bankrupt, then in this case preferred stock will have higher priority than the common equity but it will have lower priority than the bonds.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Ch. 2 - Prob. 1PS Ch. 2 - Prob. 2PS Ch. 2 - Prob. 3PS Ch. 2 - Prob. 4PS Ch. 2 - Prob. 5PS Ch. 2 - Prob. 6PS Ch. 2 - Prob. 7PS Ch. 2 - Prob. 8PS Ch. 2 - Prob. 9PS Ch. 2 - Prob. 10PS

The ways in which preferred stock is like long-term debt and equity. Introduction: The preferred stock is defined as the stock in which the holder of the stock has a fixed dividend and the payment of this stock has a higher priority in comparison of the ordinary share dividends.

To determine: The ways in which preferred stock is like long-term debt and equity. Introduction: The preferred stock is defined as the stock in which the holder of the stock has a fixed dividend and the payment of this stock has a higher priority in comparison of the ordinary share dividends.

Explanation of Solution

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Chapter 2 Solutions

To determine: The ways in which preferred stock is like long-term debt and equity.

Introduction: The preferred stock is defined as the stock in which the holder of the stock has a fixed dividend and the payment of this stock has a higher priority in comparison of the ordinary share dividends.