Question

Which of the following statements about preferred shares is false? O Retractable preferred shares allow the shareholders to bring forward the maturity date. O The most common preferred shares in Canada are straight preferred shares. O Preferred shareholders can force bankruptcy if the firm defaults on the dividend payment. O Floating rate preferred share dividends are reset periodically. Wildhorse Industries after-tax cost of debt is 8.4% and the company has an effective tax rate of 30%. What is the company's yield on debt? (Round answer to 2 decimal places, e.g. 15.75.) Company's yield on debt % A firm's cost of debt can best be estimated: O by adding a risk premium to the coupon rate. O lisir using the yield-to-maturity on newly issued debt of other firms. O using the firm's borrowing rate on short-term loans. O using the yield-to-maturity on the firm's outstanding debt.

Answer 1

1) Preferred shareholders can force bankruptcy if the firm defaults on the dividend payment.

The above statement is false. There is no contactual right with preference shareholder to receive dividends.

2) Ans : 12.00%

After tax cost of debt = Yield on Debt(1-tax rate)

8.4% = Yield on Debt(1-30%)

8.4% =Yield on Debt(1-0.3)

8.4% = Yield on Debt(0.7)

Yield on debt = 8.4%/0.7

=12%

3) Using yield to maturity on firm's outstanding debt