Exam 17: Common and Preferred Stock Financing

A possible advantage to a rights offering is that

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

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

North stock sells for $65 rights-on, and the subscription price is $55. Nine rights are required to purchase one share. The value of a right is ________.

Coase Corp. has 10,000,000 outstanding shares. There are 11 directors on the firm's board. The Becker family owns 2,300,000 shares of Coase Corp. How many directors can the Becker family be assured of electing by themselves if Coase Corp. uses majority voting?

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

The par value on a preferred stock entitles the holder to

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

The "convertible exchangeable" feature of preferred shares gives companies the sole right to force preferred stock holders to exchange for common stock.

Preferred stock dividends are a tax-deductible expense for a corporation.

Preferred stock may be good for a company because it

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

If the current market value of Markowitz Corp stock is $61 and 10 rights are required to buy one additional share of Markowitz at the subscription price of $50, then the rights are worth $1.00.

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

The margin requirement specifies the amount of cash or equity that must be deposited with a brokerage house or a bank, with the balance of funds eligible for borrowing.

A corporate investor of preferred stock receiving a before-tax preferred yield of 8.5%, and having a corporate tax rate of 21%, would receive an after-tax preferred yield of approximately ________. Assume the tax rate on dividends is 15%.

"Dutch auction" preferred stock

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

Common stockholders may assign a proxy, or the power to cast their ballot, only when majority voting is in place.

To the security holder, preferred stock usually offers higher risk and lower after-tax return compared to bonds.