Question

For purposes of measuring a firm’s leverage, should preferred stock be classified as debt or equity?...

For purposes of measuring a firm’s leverage, should preferred stock be classified as debt or equity? Does it matter whether the classification is being made (a) by the firm’s management, (b) by creditors, or (c) by equity investors?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

ANSWER:-

(a)

(b)

(c)

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
For purposes of measuring a firm’s leverage, should preferred stock be classified as debt or equity?...
For purposes of measuring a firm’s leverage, should preferred stock be classified as debt or equity? What are the differences if the classification is being made (a) by the firm’s management, (b) by creditors, and (c) by equity investors?
Generally, the return on an equity investment is higher than the return on debt or preferred...
Generally, the return on an equity investment is higher than the return on debt or preferred stock because: a. equity risk is higher b. people are more willing to invest in debt c. the cost of preferred stock is usually between the cost of debt and that of equity d. all the above Although the money paid to investors is both the firm's cost and the investors return, a. certain adjustments prevent the effective cost and return from being the...
A firm’s optimal capital structure is 45% debt, 10% preferred stock, and 45% common equity. The...
A firm’s optimal capital structure is 45% debt, 10% preferred stock, and 45% common equity. The firm’s tax rate is 43%. The beta coefficient of the firm’s debt is 0.2, the risk-free rate of interest is 2.7% and the market risk premium (RM-RF) is 7.3%. The firm’s preferred stock currently has a price of $84 and it carries a dividend of $10 per share. Currently, the price of a share of common equity was $29 per share. The last dividend...
Shareholders' equity: a) is referred to as a firm’s financial leverage. b) is equal to total...
Shareholders' equity: a) is referred to as a firm’s financial leverage. b) is equal to total assets plus total liabilities. c) decreases whenever new shares of stock are issued. d) includes patents, preferred stock, and common stock. e) represents the residual value of a firm.
1. Suppose a firm’s after-tax cost of debt is 12%, cost of preferred stock is 8%,...
1. Suppose a firm’s after-tax cost of debt is 12%, cost of preferred stock is 8%, and cost of equity is 5%. If the optimal structure is 35% debt and 65% equity, what is the firm’s WACC? 9.22% 8.41% 7.45% 7.20% None of the above 2. Vance Refrigeration just paid a dividend of $1.05 per share and can support dividend growth of 3% per year forever. Assume a required return of 8%. The stock is actively trading at $21.38. Would...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings is used in the firm's WACC calculation. However, if...
Preferred stock is a hybrid security, because it has some characteristics typical of debt and others...
Preferred stock is a hybrid security, because it has some characteristics typical of debt and others typical of equity. The following table lists various characteristics of preferred stock. Determine which of these characteristics is consistent with debt and which is consistent with equity. Characteristics Debt Equity Dividends are fixed. Failure to pay a preferred dividend does not send the firm into bankruptcy. Consider the case of Tamin Enterprises: At the present time, Tamin Enterprises does not have any preferred stock...
A firm has a​ long-term debt of $54,000​ common equity of $94,000​, and preferred stock of...
A firm has a​ long-term debt of $54,000​ common equity of $94,000​, and preferred stock of $16,000. What is its current capital​ structure? If debt costs 10.1 % pretax, preferred stock costs 12 % and equity costs 15.2 % what is the WACC​ (assuming a 40% tax​ rate)? A The total value of the capital is B The weight of the debt component is C The weight of the preferred stock component is D The weight of the equity component...
which is true concerning preferred stock? A. preferred stock is considered equity on the company balance...
which is true concerning preferred stock? A. preferred stock is considered equity on the company balance sheet b. preferred stock holders have voting rights for the company board of directors C. preferred stock payments are variable like common stock d. preferred stock is viewed as more risky by investors than a firm's common stock
If a company's capital structure has equity , debt and preferred stock, would you add the...
If a company's capital structure has equity , debt and preferred stock, would you add the preferred stock to get from the implied enterprise value to the implied equity value in a DCF analysis? And explain it. a. Yes, always, because Preferred Stock is a part of Enterprise Value. b) Only if you are not counting Preferred Dividends in the FCF projections. c) You never “add” Preferred Stock to go from Enterprise Value to Equity Value – you subtract it,...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT