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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(d) Estimate the value of a share of Cisco common stock using the discounted cash flow (DCF) model as of July 27, 2019 using the following assumptions Assumptions Discount rate (WACC) Common shares outstanding 7.60% 5,029.00 million Net nonoperating obligations (NNO) $(8,747) million NNO is negative, which means that Cisco has net nonoperating investments CSCO ($ millions) DCF Model Reported 2019 Forecast Horizon 2020 Est. 2021 Est. 2022 Est. 2023 Est. Terminal Period Increase in NOA FCFF (NOPAT - Increase in NOA) $ 1241 1303 1368 10673 11207 11767 1437 $ 12354 302 ✓ Present value of horizon FCFF 9918 9679 9445 ✔ 0 × Cum. present value of horizon FCFF $ 0 × Present value of terminal FCFF 0 ☑ Total firm value 0 ☑ NNO -8747 ✓ Firm equity value $ 0 ☑ Shares outstanding (millions) 5029 Stock price per share $ 40.05

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

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.