Exam 17: Common and Preferred Stock Financing

Sharpe Products has one million outstanding shares and seven directors to be elected. Cumulonimbus Holdings owns 200,000 shares of Sharpe. How many directors can Cumulonimbus elect with cumulative voting?

Stock classes may differ in voting rights, dividend rights, and claims to income during company elimination.

The subscription rate of a new offering is generally _______ than the rights-on price and _______ than the ex-rights price.

Participating preferred stock may receive an extra dividend in a particularly good year when earnings are above a stated level.

Some preferred stocks are "participating pre ferreds," allowing for an increase in the preferred stock dividend when additional profits are available after common stock dividends have been paid.

Which of the following statements is true with respect to cumulative voting?

Preferred stock generally carries a higher interest rate than debt.

Under majority voting, it is easier for minority stockholders to elect directors to the board.

The difference between the rights-on and ex-rights common stock price is equal to the value of a right to purchase future stocks, all other things being equal.

Five rights are necessary to purchase one share of Fogel stock at $50. A right sells for $4. The ex-rights value of Fogel stock is _______.

American Depository Receipts (ADRs) are certificates that give foreign stockholders a legal claim on U.S. companies' foreign stock.

American Depository Receipts (ADRs) are

Given that there are 4,000,000 shares outstanding in Miller Corp., how many shares will be required for a minority group of stockholders to elect two of the nine members on the board of directors? (Assume cumulative voting is required.)

Preferred stock is often sold by companies

Dutch Auction preferred stocks, unlike standard preferred stocks, are typically used as short-term instruments.

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

Although American Depository Receipts (ADRs) are traded in the U.S. in dollars, U.S. investors may still incur foreign currency risk.

The after-tax cost of debt is usually cheaper than issuing preferred stock to the corporation, all things being equal.

The Harsanyi Corp. is considering four investments. Which provides the highest after-tax return for Harsanyi Corp. if it is in the 34% federal tax bracket? Assume the tax rate on dividends is 15%.

Which of the following is an advantage of American Depository Receipts (ADRs)?