Exam 17: Common and Preferred Stock Financing

Fritz Corporation has 800,000 shares of preferred stock and 1,800,000 shares of common stock. The cumulative preferred stock has a stated dividend of $2.50 per share. Under normal conditions, Kreisler pays out 30% of earnings available to common shareholders, however, because of a severe recession, Fritz retained all earnings last year. This year, Fritz earned net income of $6.4 million. Calculate the dividend per share to be received by the common shareholders this year.

Firm Y has 5,000,000 outstanding shares. There are 11 directors on the firm's board. The Bubba family owns 20% the firm's stock. How many directors can the Bubba family elect by themselves if firm Y uses majority voting?

The ex-rights date usually takes place after the end of the subscription period.

When a cumulative voting method is used, it is possible for those who hold less than a 50 percent interest to elect board members.

Participating preferred stock gives its owners voting rights.

Generally the receipt of corporate bond interest is more valuable than preferred dividends to corporate investors.

Which of the following actions will provide the shareholders with the least total wealth when a company makes a rights offering?

Advantages that the American Depositary Receipts (ADRs) have over investing in actual shares of a foreign stock include all but the following;

Given that there are 6,000,000 shares outstanding in a corporation, how many additional shares will be required for a minority group of shareholders to elect 4 of the 14 members on the board of directors? (Assume cumulative voting required. Assume the group already owns 400,000 shares.)

Some preferred shares are participating preferreds and this may allow for an increase in the preferred share dividend when the common share dividend equals the preferred share dividend.

You are a shareholder in Trees N Things (TNT) and you would like to elect 6 of the 11 members of the Board of Directors. If there are 3.5 million shares outstanding what is the minimum number of shares required to elect your slate of directors under cumulative voting?

Preferred stock generally carries a higher interest rate than debt.

Shares purchased through a rights offering may carry lower margin requirements.

Davis Aquatic Corp. has 300,000 shares of preferred stock outstanding that is cumulative. The dividend is $8.00 per share and has not been paid for 2 years. If Davis Aquatic Corp. retained earnings and after tax income this year total $3 million, what could be the maximum payment to the preferred shareholders on a per share basis?

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

Which of the following is the correct order of corporate issues based on risk and return? (Most risk-return to least risk-return)

When a stock sells ex-rights the sale of the shares no longer entitles the purchaser to receive a right.

Which of the following is not true about preferred stock?

The period during a rights offering when the shares no longer include rights to purchase additional shares of common stock is called the ex-rights period.

The purpose of cumulative voting is: