Question

The price of preferred stock may react strongly to a change in Kp (required rate of...

The price of preferred stock may react strongly to a change in Kp (required rate of return) because

there is no maturity date.

corporate recipients of preferred stock dividends may receive a partial tax exemption.

preferred stock dividends have to be paid before common stock dividends.

preferred stock may be cumulative.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

For the given question -

The price of preferred stock may react strongly to a change in Kp (required rate of return) because -

  1. there is no maturity date
  2. corporate recipients of preferred stock dividends may receive a partial tax exemption
  3. preferred stock dividends have to be paid before common stock dividends.
  4. preferred stock may be cumulative.

Answer is option no - 1. there is no maturity date

Therefore, we can say that -

The price of preferred stock may react strongly to a change in Kp (required rate of return) because - there is no maturity date.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Preferred stock comes in many varieties. ___ preferred stock includes a requirement that past dividends not...
Preferred stock comes in many varieties. ___ preferred stock includes a requirement that past dividends not paid must be paid in future years before any common stock dividends may be paid.  ___ preferred stock includes the ability to collect dividends with the common stock owners after all preferred dividends have been paid. ___ preferred stock may be turned in for common stock under certain conditions. ___ preferred stock, also known as callable preferred stock, comes with the risk that the issuing...
1. Which of the following statements is not true? Preferred dividends are tax deductible, therefore, preferred...
1. Which of the following statements is not true? Preferred dividends are tax deductible, therefore, preferred stock is similar to debt Preferred stockholders receive dividends at a pre-specified rate. Dividends in arrears and the current period’s preferred dividend must be paid before common shareholders can receive a dividend if the preferred stock is cumulative. Preferred stock is unlike debt because preferred stockholders receive dividends in a given year only if they are declared. 2. Toledo Corporation reacquired 2,500 shares of...
There shall be created 100,000 shares of preferred stock, par value $100 per share, of the...
There shall be created 100,000 shares of preferred stock, par value $100 per share, of the Company authorized to be issued pursuant to the Certificate of Incorporation designated as the “5.00% Cumulative Preferred Stock,” par value $100 per share (the “Preferred Stock”). The holders of shares of the outstanding Preferred Stock shall be entitled, when, as and if declared by the Board of Directors out of funds of the Company legally available therefor, to receive cumulative dividends at the rate...
Sheffield Corporation’s December 31, 2018 balance sheet showed the following: 7% preferred stock, $20 par value,...
Sheffield Corporation’s December 31, 2018 balance sheet showed the following: 7% preferred stock, $20 par value, cumulative, 14600 shares authorized; 9600 shares issued $ 192000 Common stock, $10 par value, 1010000 shares authorized; 985000 shares issued, 970000 shares outstanding 9850000 Paid-in capital in excess of par—preferred stock 28500 Paid-in capital in excess of par—common stock 11630000 Retained earnings 3760000 Treasury stock (15000 shares) 315000 Sheffield’s total paid-in capital was    A. $22015500.    B. $11750500.    C. $21385500.    D....
7. Which of the following is TRUE? Stock prices should fall by the amount of the...
7. Which of the following is TRUE? Stock prices should fall by the amount of the dividend on the Payment Date. Large shareholders prefer cumulative voting Companies issue rights to existing shareholders to prevent dilution All of the above are true 8.              Which of the following statements is TRUE? a.              Owners of preferred stock have greater voting rights than common shareholders. b.              In case of bankruptcy, preferred stock gets paid before common stock c.              Companies are more likely to issue preferred stock if they...
Which of the following statements comparing preferred stock to other financial instruments is NOT true? Like...
Which of the following statements comparing preferred stock to other financial instruments is NOT true? Like common shares, preferred dividends are typically paid quarterly. Like common shares, preferred dividends are after-tax payments for the firm. Like bonds, preferred shares are issued with a face value. Like bonds, most preferred shares have maturities of up to 30 years. To estimate the after-tax cost of common stock you must: multiply the before-tax cost of equity by (tax rate) multiply the before-tax cost...
11.    A firm's preferred stock pays an annual dividend of $2, and the stock sells for $65....
11.    A firm's preferred stock pays an annual dividend of $2, and the stock sells for $65. Flotation costs for new issuances of preferred stock are 5% of the stock value. What is the after-tax cost of preferred stock if the firm's tax rate is 30%? 12.    A firm's stock is selling for $62. The next annual dividend is expected to be $3.00. The growth rate is 9%. The flotation cost is $5.00. What is the cost of retained earnings? 13.    A firm's...
Kirchner Company has 50,000 shares of $10 par value, 6% preferred stock and 300,000 shares of...
Kirchner Company has 50,000 shares of $10 par value, 6% preferred stock and 300,000 shares of $1 par value common stock outstanding. As of December 31, 2018, it had $900,000 of Retained earnings. On December 31, 2019, the Board of Directors is considering the distribution of a cash dividend to the common and preferred stockholders. No dividends were declared in 2017 and 2018 and no dividends were in arrears prior to 2017. The company is considering the following options. Option...
1.     Tennessee Water has $1,000 par value bonds outstanding at 5% interest. The bonds will  mature in 20...
1.     Tennessee Water has $1,000 par value bonds outstanding at 5% interest. The bonds will  mature in 20 years. Compute the current price of the bonds if the present yield to maturity is 7% 2.    Exodus Company has $1,000 par value bonds outstanding at 6% interest. The bonds will mature in 15 years. Compute the current price of the bonds if the current interest rate is 4%. 3.     The preferred stock of Ultra Corporation pays an annual dividend of $7.00. It has a required...
Makoto Corporation has 9,500 shares of $100 par value, 8%, preferred stock and 45,600 shares of...
Makoto Corporation has 9,500 shares of $100 par value, 8%, preferred stock and 45,600 shares of $10 par value common stock outstanding at December 31, 2020. Answer the questions in each of the following independent situations. (a) If the preferred stock is cumulative and dividends were last paid on the preferred stock on December 31, 2017, what are the dividends in arrears on December 31, 2020, balance sheet? The amount of dividends in arrears on the December 31, 2020 $...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT