Preferred stock is the least used of all long-term securities because A) investors can get higher returns after taxes in other investments. B) preferred dividends are considered regular (fixed) obligations but are not tax-deductible. C) flotation costs are extremely high compared to bonds. D) all of these.
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A) |
investors can get higher returns after taxes in other investments. |
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B) |
preferred dividends are considered regular (fixed) obligations but are not tax-deductible. |
|
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C) |
flotation costs are extremely high compared to bonds. |
|
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D) |
all of these. |
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- One advantage of issuing bonds instead of stock is that: Multiple Choice O Interest is tax deductible, whereas dividends are not Bonds have a longer maturity date. Interest rates are lower than dividend rates. Borrowing funds by issuing bonds does not affect earnings per share.1. Rank bonds, common stock, and preferred stock with regard to two factors the possibility of a substantial increase in value. Rank these same securities with regard to investors' legal claims for repayment on their investments. 2. Would a relatively high P/E ratio lead us to conclude that a stock is overvalued or undervalued? Why or why not? 3. Explain how a consumption tax could lead to a decrease in real interest rates. 4. List and discuss the various reasons that contributed to the financial crisis that occurred in 2008.Part A: When calculating a holding period of return, dividends are excluded. True B) False Part B: Interest expense is not tax deductible while dividends are . True B) False Part C: A bond with a rating of AA is better than a bond rated AAA. True B) False PART D: Most stock trading occurs on the secondary market. True B) False
- is NOT a characteristic of a money market instrument. A. illiquidity B. short maturity C. low risk D. none of above 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 fim as opposed to interest payment. Which of the following is NOT money market security? A. Bankers acceptance B. Treasury notes C. Federal funds D. Eurodollars and Eurodollar CD'sOne often finds that a company’s bonds have a higher yield than its preferred stock, eventhough an investor considers the bonds to be less risky than the preferred. What causes thisyield differential?Which of the following is a disadvantage of using bonds? a. Bondholders do not participate in extraordinary profits; the payments are limited to interest. b. Bondholders do not have voting rights. c. Debt (other than income bonds) produces fixed charges, increasing the firm’s financial leverage. d. Flotation costs of bonds are generally lower than those of ordinary (common) equity shares.
- Why do at least some investors like to invest in asset-backed securities? Check all that apply: ABS are less risky than bonds with the same rating. It lowers their capital requirements. It gives them control over more assets. ABS often pay higher interest rates than bonds with the same rating.3. 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 Dividends are fixed. No tax adjustments are made when calculating the cost of preferred stock. Consider the case of Turnbull Enterprises: At the present time, Turnbull Enterprises does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Turnbull has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $13 per share. If the investors pay $100.15 per share for their investment, then Turnbull’s cost of preferred stock (rounded to four…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…
- How do stocks and bonds differ in terms of the future payments that they are expected to make? Which type of investment (stocks or bonds) is considered to be more risky? Given what you know, which investment (stocks or bonds) do you think commonly goes by the nickname “fixed income”?Identify the following as either an advantage or a disadvantage of bond financing for a company. a. Bonds do not affect owner control. b. A company earns a lower return with borrowed funds than it pays in interest. c. A company earns a higher return with borrowed funds than it pays in interest. d. Bonds require payment of periodic interest. e. Interest on bonds is tax deductible. f. Bonds require payment of par value at maturity.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 Dividends are fixed. No tax adjustments are made when calculating the cost of preferred stock. Consider the case of Bogdan Enterprises: At the present time, Bogdan Enterprises does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Bogdan has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $10 per share. If the investors pay $110.22 per share for their investment, then Bogdan’s cost of preferred stock (rounded to four decimal places) will be .