Exam 17: Common and Preferred Stock Financing

The Nash Corp. is considering four investments. Which provides the highest after-tax return for Nash Corp. if it is in the 21% federal tax bracket? Assume the tax rate on dividends is 15%.

American Depository Receipts (ADRs) are

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

After a rights offering, the common stock price will sell at the subscription price.

If a company has preferred stock, it must pay the dividends on the preferred even if it shows no profit for the year.

Common stockholders have a residual claim to income; in other words they are last in line during an elimination of the company.

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?

A poison pill will raise the potential for maximizing shareholder value because it deters takeover bids.

Kuhns Corp. has 200,000 shares of preferred stock outstanding that is cumulative and 100,000 common stock outstanding. The preferred dividend is $3.00 per share and has not been paid for three years. If Kuhns earned $1 million this year, what could be the maximum payment to the preferred stockholders on a per share basis?

Which one of the following statements is false?

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

Which of the following is the correct order of securities based on risk and return? (From most risk-return to least risk-return.)

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

American Depository Receipts

An increasing proportion of shares in the U.S. are owned by

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

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

A common stockholder cannot force a company into bankruptcy for eliminating the dividend.

The following are primary purchasers of preferred stock except

Common stockholders have a legal claim to dividend income.