Question 1

The market price of "floating rate" preferred stock is less volatile than that of regular preferred stock.

Accepted Answer

A) True 
 B)False

Question 2

Bondholders never have any control over the actions of a firm.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is NOT a primary investor in preferred stock?

Accepted Answer

A)   Commercial banks
B)   Corporations
C)   Insurance companies
D)   Pension funds

Question 4

An individual investing in preferred stock receiving a before-tax preferred yield of 6.75% and having a tax rate of 25% would receive an after-tax preferred yield of _____. Assume the tax rate on dividends is 15%.

Accepted Answer

A)   6.75%
B)   5.1%
C)   5.7%
D)   6.1%

Question 5

Floating rate preferred stock would be ideal to have when the stock price fluctuates and when there are tax benefits to owning preferred stock

Accepted Answer

A) True 
 B)False

Question 6

Preferred stock would generally provide a lower before-tax yield to investors than secured debt due to its lower risk.

Accepted Answer

A) True 
 B)False

Question 7

The following are primary purchasers of preferred stock except

Accepted Answer

A)   corporate investors.
B)   insurance companies.
C)   pension funds.
D)   individual investors.

Question 8

A possible advantage to a rights offering is that

Accepted Answer

A)   current shareholders are protected against dilution.
B)   the firm has a built-in market of knowledgeable investors.
C)   distribution costs are lower than a public offering.
D)   All of these options are true.

Question 9

To the corporate investor, preferred stock offers which of the following advantages?

Accepted Answer

A)   A higher yield than debt, everything else being equal before taxes.
B)   30% of preferred dividends are tax-exempt.
C)   70% of preferred dividends are tax-exempt.
D)   70% of preferred dividends are tax-exempt and have a higher yield than debt, all else equal before taxes.

Question 10

"Dutch auction" preferred stock

Accepted Answer

A)   is issued first to the bidder willing to accept the lowest yield.
B)   matures periodically, and is then re-auctioned at a subsequent bidding.
C)   allows corporate investors to take advantage of preferred stock tax benefits.
D)   all of these options are true.

Question 11

Participating preferred stock gives its owners voting rights.

Accepted Answer

A) True 
 B)False

Question 12

If a corporation pays no taxes because it is losing money, a preferred stock issuance becomes more attractive relative to a debt issuance.

Accepted Answer

A) True 
 B)False

Question 13

If a preferred stock is of the cumulative type,

Accepted Answer

A)   dividends must be paid on an equal basis with common stock, so long as earnings permit.
B)   dividends cannot be passed if they are earned.
C)   dividends must be paid, and if not a liability is created.
D)   unpaid dividends of one period must be carried forward and paid in subsequent periods before anything can be paid to common stockholders.

Question 14

A proxy is

Accepted Answer

A)   a device for circumventing regular voting procedures.
B)   a coupon attached to each share of stock and used by the shareholder in casting their vote on current issues.
C)   an authorization of a registered stockholder to another person to act in their place at the meeting.
D)   a warrant allowing a stockholder to purchase a specified number of additional shares at a given price.

Question 15

A rights offer made to existing shareholders with the sole purpose of making it more difficult for another firm to acquire the company is called

Accepted Answer

A)   a pre emptive right.
B)   a poison pill.
C)   ex-rights.
D)   rights-on.

Question 16

The particular type of shareholder voting used has become less important with the influence of takeovers, leveraged buy-outs, and other challenges to management control.

Accepted Answer

A) True 
 B)False

Question 17

The floating rate feature on preferred stock causes more volatility in its price.

Accepted Answer

A) True 
 B)False

Question 18

"Pre emptive rights" means that

Accepted Answer

A)   existing shareholders can prevent management from issuing additional common stock.
B)   common shareholders can "preempt" preferred shareholders for dividends.
C)   existing shareholders are guaranteed an opportunity to retain their proportional share of ownership.
D)   management can preempt the right of shareholders to receive dividends if earnings are down.

Question 19

Buggy Whip Manufacturing Company is issuing preferred stock yielding 8%. Selten Corporation is considering buying the stock. Assume that Buggy's tax rate is 0% due to continuing heavy tax losses, and Selten's tax rate is 34%. What is the after-tax preferred yield for Selten? Assume the tax rate on dividends is 15%.

Accepted Answer

A)   7.22%
B)   5.33%
C)   7.64%
D)   8.00%

Question 20

Which of the following is not a very common feature of preferred stock?

Accepted Answer

A)   Cumulative dividends
B)   Voting rights
C)   Call feature
D)   The conversion feature

Exam 17: Common and Preferred Stock Financing

To the corporate investor, preferred stock offers which of the following advantages?

Correct Answer
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A proxy is

Correct Answer
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Floating rate preferred stock would be ideal to have when the stock price fluctuates and when there are tax benefits to owning preferred stock

Correct Answer
verified

The market price of "floating rate" preferred stock is less volatile than that of regular preferred stock.

Correct Answer
verified

Bondholders never have any control over the actions of a firm.

Correct Answer
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Which of the following is NOT a primary investor in preferred stock?

Correct Answer
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A rights offer made to existing shareholders with the sole purpose of making it more difficult for another firm to acquire the company is called

Correct Answer
verified

The particular type of shareholder voting used has become less important with the influence of takeovers, leveraged buy-outs, and other challenges to management control.

Correct Answer
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Correct Answer
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The floating rate feature on preferred stock causes more volatility in its price.

Correct Answer
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The following are primary purchasers of preferred stock except

Correct Answer
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Participating preferred stock gives its owners voting rights.

Correct Answer
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If a preferred stock is of the cumulative type,

Correct Answer
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An individual investing in preferred stock receiving a before-tax preferred yield of 6.75% and having a tax rate of 25% would receive an after-tax preferred yield of _____. Assume the tax rate on dividends is 15%.

Correct Answer
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If a corporation pays no taxes because it is losing money, a preferred stock issuance becomes more attractive relative to a debt issuance.

Correct Answer
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"Pre emptive rights" means that

Correct Answer
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Which of the following is not a very common feature of preferred stock?

Correct Answer
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Preferred stock would generally provide a lower before-tax yield to investors than secured debt due to its lower risk.

Correct Answer
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"Dutch auction" preferred stock

Correct Answer
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A possible advantage to a rights offering is that

Correct Answer
verified

Exam 17: Common and Preferred Stock Financing

To the corporate investor, preferred stock offers which of the following advantages?

Correct AnswerverifiedShow Answer

A proxy is

Correct AnswerverifiedShow Answer

Floating rate preferred stock would be ideal to have when the stock price fluctuates and when there are tax benefits to owning preferred stock

Correct AnswerverifiedShow Answer

The market price of "floating rate" preferred stock is less volatile than that of regular preferred stock.

Correct AnswerverifiedShow Answer

Bondholders never have any control over the actions of a firm.

Correct AnswerverifiedShow Answer

Which of the following is NOT a primary investor in preferred stock?

Correct AnswerverifiedShow Answer

A rights offer made to existing shareholders with the sole purpose of making it more difficult for another firm to acquire the company is called

Correct AnswerverifiedShow Answer

The particular type of shareholder voting used has become less important with the influence of takeovers, leveraged buy-outs, and other challenges to management control.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The floating rate feature on preferred stock causes more volatility in its price.

Correct AnswerverifiedShow Answer

The following are primary purchasers of preferred stock except

Correct AnswerverifiedShow Answer

Participating preferred stock gives its owners voting rights.

Correct AnswerverifiedShow Answer

If a preferred stock is of the cumulative type,

Correct AnswerverifiedShow Answer

An individual investing in preferred stock receiving a before-tax preferred yield of 6.75% and having a tax rate of 25% would receive an after-tax preferred yield of _____. Assume the tax rate on dividends is 15%.

Correct AnswerverifiedShow Answer

If a corporation pays no taxes because it is losing money, a preferred stock issuance becomes more attractive relative to a debt issuance.

Correct AnswerverifiedShow Answer

"Pre emptive rights" means that

Correct AnswerverifiedShow Answer

Which of the following is not a very common feature of preferred stock?

Correct AnswerverifiedShow Answer

Preferred stock would generally provide a lower before-tax yield to investors than secured debt due to its lower risk.

Correct AnswerverifiedShow Answer

"Dutch auction" preferred stock

Correct AnswerverifiedShow Answer

A possible advantage to a rights offering is that

Correct AnswerverifiedShow Answer

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