Which of the following statements is CORRECT? a. When calculating the cost of preferred stock, a...
Which of the following statements is CORRECT?
| a. |
When calculating the cost of preferred stock, a company does not need to adjust for taxes, because preferred stock dividends are not deductible by the paying corporation |
|
| b. |
Since the money is readily available, the after-tax cost of retained earnings is usually much lower than the after-tax cost of debt |
|
| c. |
All else equal, an increase in a company’s stock price will increase its marginal cost of retained earnings, rs |
|
| d. |
All else equal, an increase in a company’s stock price will increase its marginal cost of new common equity, re |
Homework Answers
Correct statement is a
Dividends on preferred stock is not tax deductible so we cannot adjust for tax
Cost of retained earnings is always more than cost of debt
If share value increases it indicates cost of equity is decreased
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Which of the following statements is CORRECT?
a.
When calculating the cost of preferred stock, a...
Question 13 (1 point) Which of the following statements is correct? A) When calculating the cost...
Question 13 (1 point) Which of the following statements is correct? A) When calculating the cost of preferred stock, companies must adjust for taxes, because dividends paid on preferred stock are deductible by the paying corporation. B) When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible for the corporation. OC) If a company's beta increases, this will increase the cost of equity, but never its WACC. D) Because of tax effects,...
what is the correct answer? 10-4: Cost of Preferred Stock, tp Cost of Preferred Stock Tunney...
what is the correct answer?
10-4: Cost of Preferred Stock, tp Cost of Preferred Stock Tunney Industries can issue perpetual preferred stock at a price of $57.50 a share. The stock would pay a constant annual dividend of $4.50 a share. What is the company's cost of preferred stock, Tp? Round your answer to two decimal places. 8 % 10-2: Basic Definitions WACC Klose Outfitters Inc, believes that its optimal capital structure consists of 55% common equity and 45% debt,...
Cost of preferred stock Taylor Systems has just issued preferred stock. The stock has an 8%...
Cost of preferred stock Taylor Systems has just issued preferred stock. The stock has an 8% annual dividend and a $100 par value and was sold at $99.50 per share. In addition, flotation costs of $1.50 per share must be paid. a. Calculate the cost of the preferred stock. b. If the firm sells the preferred stock with a 10% annual dividend and nets $90.00 after flotation costs, what is its cost? c. Using the constant-growth valuation model, determine the...
Which of the following is the least expensive capital for the firm? Bond capital Preferred Stock capital...
Which of the following is the least expensive capital for the firm? Bond capital Preferred Stock capital Common Stock capital What will happen to your yield when you pay more for an investment, holding all else constant? The yield will go down The yield will go up The yield could go up or down The yield should not be affected Which of the following is a true statement? The cost of bond capital for the firm is not tax deductible...
7. Preferred stock Preferred stock is often called a hybrid security because it has some characteristics...
7. Preferred stock 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 securities and which are consistent with common stock. Characteristic Debt Common stock May have a sinking fund provision Usually has no specified maturity date Usually has no voting rights Green Caterpillar Garden Supplies...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings is used in the firm's WACC calculation. However, if...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings is used in the firm's WACC calculation. However, if...
22. Which of the following statements concerning preferred stocks is true? a. Preferred stockholders have anrior...
22. Which of the following statements concerning preferred stocks is true? a. Preferred stockholders have anrior claim on the income and assets of the firm as compared to the claims of lenders. b. Preferred stock dividends per share are normally increased as the earnings of the firm increase. c. Preferred dividends per share are usually not cut or suspended unless the firm is faced with serious financial problems. d. The par value of a stock is always the same as...
3. The cost of preferred stock Preferred stock is a hybrid security, because it has some...
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 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...
Which of the following statements concerning preferred stocks is true? The par value of a stock...
Which of the following statements concerning preferred stocks is true? The par value of a stock is always the same as the initial selling price. Preferred stock dividends per share are normally increased as the earnings of the firm increase. Preferred stockholders have a prior claim on the income and assets of the firm as compared to the claims of lenders. Preferred dividends per share are usually not cut or suspended unless the firm is faced with serious financial problems.
Question 13 (1 point) Which of the following statements is correct? A) When calculating the cost of preferred stock, companies must adjust for taxes, because dividends paid on preferred stock are deductible by the paying corporation. B) When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible for the corporation. OC) If a company's beta increases, this will increase the cost of equity, but never its WACC. D) Because of tax effects,...
what is the correct answer?
10-4: Cost of Preferred Stock, tp Cost of Preferred Stock Tunney Industries can issue perpetual preferred stock at a price of $57.50 a share. The stock would pay a constant annual dividend of $4.50 a share. What is the company's cost of preferred stock, Tp? Round your answer to two decimal places. 8 % 10-2: Basic Definitions WACC Klose Outfitters Inc, believes that its optimal capital structure consists of 55% common equity and 45% debt,...
Cost of preferred stock Taylor Systems has just issued preferred stock. The stock has an 8% annual dividend and a $100 par value and was sold at $99.50 per share. In addition, flotation costs of $1.50 per share must be paid. a. Calculate the cost of the preferred stock. b. If the firm sells the preferred stock with a 10% annual dividend and nets $90.00 after flotation costs, what is its cost? c. Using the constant-growth valuation model, determine the...
7. Preferred stock 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 securities and which are consistent with common stock. Characteristic Debt Common stock May have a sinking fund provision Usually has no specified maturity date Usually has no voting rights Green Caterpillar Garden Supplies...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings is used in the firm's WACC calculation. However, if...
22. Which of the following statements concerning preferred stocks is true? a. Preferred stockholders have anrior claim on the income and assets of the firm as compared to the claims of lenders. b. Preferred stock dividends per share are normally increased as the earnings of the firm increase. c. Preferred dividends per share are usually not cut or suspended unless the firm is faced with serious financial problems. d. The par value of a stock is always the same as...
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