What does “residual income” imply with respect to common stock? With respect to corporate fixed income?
What does “residual income” imply with respect to common stock? With respect to corporate fixed income?
Homework Answers
Residual Income of the company is the net income earned in excess of a required return of the company from all sources of funds. The common stocks have residual claim on the profit of the company as they have claim on the profit of the company after paying all other liabilities like interest to debt, taxes and dividends to preferred stock holder. But common stocks have unlimited earning potentials as the residual profit of the firm is distributed among common shareholders. Therefore if the residual income of a company is increased then it will benefit the common stockholders as their income will increase
Corporate fixed income like bonds have limited claim on the earning of the company therefore residual income will not impact the earning of bondholders as their claim is fixed.
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What does “residual income” imply with respect to common stock?
With respect to corporate fixed income?
Q1: What is the difference between common stock and preferred stock? Q2: How is corporate income...
Q1: What is the difference between common stock and preferred stock? Q2: How is corporate income double-taxed?
What are the benefits for corporate holders of preferred stocks versus corporate common stock holders?
What are the benefits for corporate holders of preferred stocks versus corporate common stock holders?
what credit quality does this imply? -AA -A -BBB -BB clear picture, what credit quality does...
what credit quality does this imply?
-AA
-A
-BBB
-BB
clear picture, what credit quality does this imply?
AA,A,BBB or BB
QUESTION 4 XYZ Corp bonds have 3 years until maturity and are trading at 10 bes over treasures. What credit quality does this imply Use the chart below to answer the question Average US corporate bond spread tables Table 26: Average US corporate bond spreads across gross rating categories per maturity bucket (1997-2003). Open table as spreadsheet 1-3 years...
Which of the following is not associated with characteristics of common stock? 1. residual claim on...
Which of the following is not associated with characteristics of common stock? 1. residual claim on income and assets 2. proxy 3. cumulative dividends 4. dual-class stock
What does the separation theorem imply?
What does the separation theorem imply?
If a firm adheres strictly to the residual dividend policy, the issuance of new common stock...
If a firm adheres strictly to the residual dividend policy, the issuance of new common stock would suggest that no dividends to common stockholders. dividends only out of funds raised by the sale of new common stock. dividends only out of funds raised by borrowing money (i.e., issue debt). dividends only out of funds raised by selling off fixed assets. no dividends except out of past retained earnings.
You plan to invest $1,000 in a corporate bond fund or in common stock fund. The...
You plan to invest $1,000 in a corporate bond fund or in common stock fund. The following table presents the annual return (per $1000) of each of these investments under various economic conditions and the probability that each of those economic conditions will occur . Probability Economic Corporate| Common Condition Bond Fund Stock Fund 0.02 Extreme Recession . -200 -990 0.08 Recession -70 -300 0.15 Stagnation 30 -100 0.30 Slow Growth 70 100 0.35 Moderate growth 90 150 0.10 High...
what exacty is residual income? How do we calculate it and what does it tell us?
what exacty is residual income? How do we calculate it and what does it tell us?
(e) Suppose that we reject the null hypothesis, what does that imply about OLS estimatron of the ...
(e) Suppose that we reject the null hypothesis, what does that imply about OLS estimatron of the regression equation of ve? (Hint: does this problem affect unbiasedness or c ciency of OLS estimators?) (d) (10 pts bonus) Solve the problem by completely specifying the regression model. 630 pts) Suppose & is the residual of the following regression (a) If we are also running the regression what OLS assumption of time series data we suspect is violated (what time series prob-...
Hardy Lumber has a capital structure that includes bonds, preferred stock, and common stock. Which one...
Hardy Lumber has a capital structure that includes bonds, preferred stock, and common stock. Which one of the following rights is most apt to be granted to the preferred shareholders? Multiple Choice Right to share in company profits prior to other shareholders. Right to elect the corporate directors. Right to vote on proposed mergers. Right to all residual income after the common dividends have been paid, o oo right to all resicus income are the Right to a permanent seat...
what credit quality does this imply?
-AA
-A
-BBB
-BB
clear picture, what credit quality does this imply?
AA,A,BBB or BB
QUESTION 4 XYZ Corp bonds have 3 years until maturity and are trading at 10 bes over treasures. What credit quality does this imply Use the chart below to answer the question Average US corporate bond spread tables Table 26: Average US corporate bond spreads across gross rating categories per maturity bucket (1997-2003). Open table as spreadsheet 1-3 years...
(e) Suppose that we reject the null hypothesis, what does that imply about OLS estimatron of the regression equation of ve? (Hint: does this problem affect unbiasedness or c ciency of OLS estimators?) (d) (10 pts bonus) Solve the problem by completely specifying the regression model. 630 pts) Suppose & is the residual of the following regression (a) If we are also running the regression what OLS assumption of time series data we suspect is violated (what time series prob-...
Hardy Lumber has a capital structure that includes bonds, preferred stock, and common stock. Which one of the following rights is most apt to be granted to the preferred shareholders? Multiple Choice Right to share in company profits prior to other shareholders. Right to elect the corporate directors. Right to vote on proposed mergers. Right to all residual income after the common dividends have been paid, o oo right to all resicus income are the Right to a permanent seat...
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