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

In what ways is preferred stock like long-term debt? In what ways is it like equity?

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Is preferred stock comparable to long-term debt in any way? Is it comparable to equity in any way?

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.