Preferred stock is often called a hybrid security because it has some characteristics that are typical...
Preferred stock is often called a hybrid security because it has some characteristics that are typical of debt and others that are typical of equity. The following table lists several characteristics of preferred stock. Determine which of these characteristics are consistent with debt securities and which are consistent with common stock.
|
Characteristic |
Debt |
Common Stock |
|
|---|---|---|---|
| Dividend calculated as a percentage of the par value | |||
| Usually nonparticipating | |||
| May be called, or redeemed, prior to the end of its normal life |
Happy Orange Storage Company is required to repurchase and retire 5% of its preferred stock each year. Which type of provision does Happy Orange have in its preferred stock agreements?
A call provision
A participating provision
A sinking fund provision
Homework Answers
Debt is in the nature of loan while stock is in the nature of ownership
The characteristics correspond to following:
Dividend calculated as a percentage of the par value – Debt since fixed interest rate is paid on debt
Usually nonparticipating – Debt
May be called, or redeemed, prior to the end of its normal life – Common Stock, as debt has fixed life
A call provision
Participating provision refers to participation in profits of the company
Amount payable in future is accumulated in sinking fund
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Preferred stock is often called a hybrid security because it has
some characteristics that are typical...
7. Preferred stock Preferred stock is often called a hybrid security because it has some characteristics...
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Preferred stock is often called a hybrid security because it has some characteristics that are typical of debt and...
Preferred stock is often called a hybrid security because it has some characteristics that are typical of debt and others that are typical of common equity. The following table lists several characteristics of preferred stock. Determine which of these characteristics are consistent with debt securiti and which are consistent with common stock. Characteristic Debt Common stock Most issues pay quarterly dividends. Some issues are perpetual, and do not mature. O Consider the case of Blue Hamster Manufacturing: Blue Hamster Manufacturing...
Preferred stock is a hybrid security, because it has some characteristics typical of debt and others...
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...
Preferred stock is a hybrid security, because it has some characteristics typical of debt and others...
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Preferred stock is often called a hybrid security because it has some characteristics that are typical of debt and others that are typical of common equity. The following table lists several characteristics of preferred stock. Determine which of these characteristics are consistent with debt securiti and which are consistent with common stock. Characteristic Debt Common stock Most issues pay quarterly dividends. Some issues are perpetual, and do not mature. O Consider the case of Blue Hamster Manufacturing: Blue Hamster Manufacturing...
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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. Failure to pay a preferred dividend does not send the firm into bankruptcy. O Consider the case of Turnbull Enterprises: At the present time, Turnbull Enterprises does not...
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