Exam 17: Common and Preferred Stock Financing

Floating rate preferred stock allows shareholders to receive more or less than the quoted dividend based on the firm's success.

Which of the following statements about floating rate preferred stock is true?

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

Kuhns Corp. has 200,000 shares of preferred stock outstanding that is cumulative. The dividend is $6.50 per share and has not been paid for 3 years. If Kuhns earned $3 million this year, what could be the maximum payment to the preferred shareholders on a per share basis?

If a corporate charter includes a provision for preemptive rights, the shareholders

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

The difference between the rights-on and ex-rights common stock price is equal to the value of a right.

Preferred stock is often sold by companies

Describe income trusts. What is the purpose of an income trust?

Preferred stock is the least used of all long-term securities because

Share classes are similar to bond ratings in that they are used to rank the performance of different corporation's stock.

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.

Corporation A is issuing preferred stock yielding 9%, and Corporation B is considering buying the stock. Corp A's tax rate is 23% and Corp B's tax rate is 39%. What is the aftertax preferred yield for Corp A?

A share is said to sell "ex-rights"

Occasionally, a company will have several classes of common stock, with each class carrying different rights to dividends and income.

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

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.

Which of the following is not true about preferred stock?

Convertible exchangeable preferreds give the holder the sole right to exchange their preferred shares for common shares.

To the individual recipient, preferred stock dividends offer no advantage over common stock dividends.