Homework Answers
Answer a.
Debt:
Most issues pay quarterly dividends
Common Stock:
Some issues are perpetual, and do not mature.
Answer b.
Annual dividend = Dividend rate * Par value
Annual dividend = 14.20% * $100.00
Annual dividend = $14.20
Current market value = Annual dividend / Required return
Current market value = $14.20 / 0.1903
Current market value = $74.62 per share
Answer c.
Current market value = Annual dividend / Dividend yield
Current market value = $14.20 / 0.2759
Current market value = $51.47 per share
Suppose that due to high inflation, interest rate rise and pull the preferred dividend yield to 27.59%. Then the value of Blue Hamster’s preferred stock will decreases to $51.47. This is because interest rate (and security returns) and security values are inversely related.
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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...
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...
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 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...
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...
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...
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...
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 Dividends are fixed Debt 0 O Equity 0 o No tax adjustments are made when calculating the cost of preferred stock. Consider the case of Bogdan Enterprises: At the present...
2. The cost of preferred stock Aa Aa Preferred stock is a hybrid security, because it...
2. The cost of preferred stock Aa Aa 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 Usually has no voting rights. No tax adjustments are made when calculating the cost of preferred stock Debt Equity Consider the case of Tamin Enterprises: At the present...
please answer all parts to the question 3. The cost of preferred stock Preferred stock is a hybrid security, becau...
please answer all parts to the question
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 Bogdan Enterprises:...
Companies that have preferred stock outstanding promise to pay a stated dividend for an infinite period. Preferred stock...
Companies that have preferred stock outstanding promise to pay a stated dividend for an infinite period. Preferred stock is treated like a perpetuity if the payments last forever. Preferred stocks are considered to be a hybrid of a common stock and a bond. For example, one of the major differences between preferred shares and bonds is that the issuing companies can suspend the payment of their preferred dividends without throwing the company into bankruptcy. However, similar to bonds, preferred stockholders...
• In Year 2, if Blue Hamster has 5,000 shares of preferred stock issued and outstanding,...
• In Year 2, if Blue Hamster has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive $40.00 in annual dividends. • If Blue Hamster has 400,000 shares of common stock issued and outstanding, then the firm's earnings per share (EPS) is expected to change from $15.69 In Year 1 to $29.81 in Year 2. • Blue Hamster's earnings before Interest, taxes, depreciation and amortization (EBITDA) value changed from In Year 1 to...
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...
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...
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...
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 Dividends are fixed Debt 0 O Equity 0 o No tax adjustments are made when calculating the cost of preferred stock. Consider the case of Bogdan Enterprises: At the present...
2. The cost of preferred stock Aa Aa 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 Usually has no voting rights. No tax adjustments are made when calculating the cost of preferred stock Debt Equity Consider the case of Tamin Enterprises: At the present...
please answer all parts to the question
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 Bogdan Enterprises:...
• In Year 2, if Blue Hamster has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive $40.00 in annual dividends. • If Blue Hamster has 400,000 shares of common stock issued and outstanding, then the firm's earnings per share (EPS) is expected to change from $15.69 In Year 1 to $29.81 in Year 2. • Blue Hamster's earnings before Interest, taxes, depreciation and amortization (EBITDA) value changed from In Year 1 to...
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