A rapid growth firm can often can expect a shift in the type of its typical stockholder as the firm moves into maturity. True False Stock dividends usually enhance the overall wealth of the company stockholders. True False 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. True False

A rapid growth firm can often can expect a shift in the type of its typical stockholder as the firm moves into maturity. True False Stock dividends usually enhance the overall wealth of the company stockholders. True False 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. True False

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 3MC

See similar textbooks

Related questions

Q: Shares repurchase and the previous problem? Suppose the company had. Announce is going to repurchase…

A: dividend per share=1.15 Amount of repurchase=21850 Stock price before repurchase/dividend=31.4

Q: During the 1990s and 2000s, many firms repurchased stock and borrowed to do so. (i) What is the…

A: Repurchase of stock It typically happens when the firm uses the excess cash available with the…

Q: One of the three sources of capitol a firm has is offering new equity (stock) to the public. Unlike…

A: A corporation fulfills its capital and financing requirements through the issue of various financial…

Q: What do you think the consequences might be in financial markets if individuals consumed more of…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: A. Stockholders can transfer wealth from bondholders. As a finance analyst, you are required to…

A: Dividend is referred to as the share of the profit as well as retained earnings. Retained earnings…

Q: Modig theory says percentage earnings that a firm pays in dividends has no effect on its cost of…

A: a) This statement is untrue. Modigliani and Miller suggested that a dividend policy is irrelevant…

Q: Which of the following statements is FALSE? O A. Public companies typically have access to much…

A: Public companies have large capital raised through public markets, hence statement (A) is true.

Q: he use of homemade dividends allows stockholders to change the: A. cash payout received by selling…

A: Normal dividends are paid by company to the shareholders from the income earned by the company.

Q: The cost of retained earnings is less than the cost of new outside equity capital.Consequently, it…

A: Introduction: Generally, retained earnings are the total earnings of a company since the company was…

Q: A privately held corporation, is making plans for future investments that can increase growth. The…

A: For survival and growth, firms need funds time to time. Common stock is one of the most popular…

Q: Which is false about long-term sources of a firm’s capital? a. Preferred shares are securities…

A: Solution:- Long term sources of capital are those sources of funds from where the funds are acquired…

Q: When a stock repurchase occurs, which of the following is not correct? a. EPS decreases b. Shares…

A: Solution:- Share repurchase means that the company (ie. the issuer) buybacks the shares from the…

Q: In the theoretical world of Miller and Modigliani, ____. a. a firm should pay out 100% of…

A: According to Miller and Modigliani, in a perfect capital market there is no transaction cost and…

Q: True or False: Based on the company’s earnings in a particular year, repurchases can be made on an…

A: Repurchase is purchase of own shares of company to distribute wealth among shareholders.

Q: Samuel Inc., hired you as a consultant to help estimate its cost of capital. You have obtained the…

A: Cost of Equity(ke) is cost incurred by firm by having equity component in capital structure.…

Q: Leverage is the extent to which a company is using the funds provided by its shareholders to…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: Which of the following statements is false? O A. Public companies typically have access to much…

A: Public companies follow the process of initial public offering (IPO) in which company raises capital…

Q: Burnham Brothers Inc. has no retained earnings since it has always paid out all of its earnings as…

A: Introduction: This is question is based on the concept of capital asset pricing method (CAPM).…

Q: Which of the following are assumptions of the sustainable (self-supporting) growth model? Check all…

A: The capital structure of a corporation is the representation of the sources of capital of the…

Q: True or false 1.The free cash flow to equity will always be higher than the net income of the firm,…

A: Since the question has more than 3 sub-parts, the first 3 subparts are answered. If you want the…

Q: Which of the following statements is NOT true about Initial Public Offerings? A. An IPO occurs when…

A: Initial public offerings are the shares issued by private company for the first time to get itself…

Q: Companies often are under pressure to meet or beat Wall Street earnings projections in order to…

A: 1.

Q: Preferred stock may be good for a company because it a. is not as costly as common stock or bonds.…

A: Stocks can be of preferred stock or common stock

Q: True or False: The following statement accurately describes how firms make decisions related to…

A: When company requires funds, it will use retained earnings present in the company. If they are not…

Q: The history of the stock market shows that there are a large number of start -up corporations whose…

A: Investing in startups is quite risky. However, if the business is able to pull-off, the investment…

Q: rue or False: The following statement accurately describes how firms make decisions related to…

A: Floatation cost incurred by the company will increase the cost of new common stock. So, the correct…

Q: State whether the following statement is true or false and provide a written explanation of your…

A: Dividend growth model A method that helps the investors to calculate the current price of the stock…

Q: Your company has been very profitable and expects continued financial success. Its stock price has…

A: Shareholder’s equity: Shareholder’s equity is the difference between the total assets and the…

Q: (a). Large businesses spend millions of dollars annually on insurance. Why? Should they insure…

A: Note: Since you have asked multiple questions, we will solve the first for you. If you want any…

Q: One reason why small business concerns have very low dividend payout ratios is that the firm ____.…

A: The dividend payout ratio is the ratio that states the amount of the dividends paid by the company…

Q: A privately held corporation, is making plans for future investments that can increase growth. The…

A: The IPO is used when the firm wants to issue its shares to the public. The IPO results in large cash…

Q: Galaxy Corporation is proposing a recapitalization that would increase its debt level and interest…

A: EPS is computed by dividing net profits by outstanding number of stocks. When the profits remain…

Q: For each of the companies described here, would you expect it to have a low, medium, or high…

A: As you have asked a question with multiple parts, we will solve the first 3 parts as per the policy…

Q: A. Write out the equation of corporate value model, and why there is a need of corporate value model…

A: Note: I am suppose to provide the solution of question no A. Please repost the remaining questions…

Q: Koffman Corporation is trying to raise capital. What method would be the least risky to raise…

A: When a firm has a less-than-favorable credit rating, it means that the cost of debt will be high due…

Q: True or False: The following statement accurately describes how firms make decisions related to…

A: Answer for True/ False statement is as follows:False: Flotation costs are additional costs…

Q: Which one of the following statements is correct? A Modigliani and Miller argued that dividend…

A: Repurchase of shares are alternative procedure to issue dividend by distribution of wealth in the…

Q: Write out the equation of corporate value model, and why there is a need of corporate value model…

A: The equation of the corporate valuation model consists of: 1. Value of the firm 2. Expected cash…

Question

Note: kindly give me all right answers with short explanation.

Please Remember I need all answers.

Thank you

A rapid growth firm can often can expect a shift in the type of its typical stockholder as the firm moves into maturity.

True

False

Stock dividends usually enhance the overall wealth of the company stockholders.

True

False

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.

True

False

Definition Definition Type of stock which is granted priority over dividend distributions as compared to common stockholders. Preferred stocks also do not carry any voting rights. Notably, in a case where a company is going to be liquidated, preferred stockholders have a priority claim on the value of assets of the company as quoted in the balance sheet, as compared to the common stockholders.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Step 5

Step 6

Step 7

Trending now

This is a popular solution!

Step by step

Solved in 7 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Which of the following statements is true? a. High liquidity means a company is short on cash and may be unable to pay its debts.b. When a company decides to go public through an IPO, it is typically targeting to sell its shares to only a handful of shareholders. c. If the company has a higher than expected extremely high profit this year, equity holders will benefit more than debt holders as debtholders are the residual claimers for the cash flows of the company.d. In the extreme case, the debt holders take legal ownership of the firm's assets through a process called bankruptcy.e. Equity holders expect to receive dividends and the firm is always legally obligated to pay them.
Based upon the empirical evidence, state whether the following statements are true or false, and briefly explain why. a). Firms are reluctant to change dividends. b). Stock prices generally go up on the ex-dividend date by less than the amount of the dividend in classic tax system. c). Increasing dividend payments to stockholders generally makes bondholders in the firm better off. d). Dividends create a tax disadvantage for investors even when tax rates on dividends and capital gain is the same.
The history of the stock market shows that there are a large number of start -up corporations whose stock price traded at high market values despite large losses and never any positive earnings. Why would investors be willing to pay a high price for the stock of a corporation that has never reported positive earnings?
Which of the following statements is true? Group of answer choices a. Dividend payments are attractive to executives who hold many executive stock options that were awarded to them by their firms b.Executives and other insiders benefit most by being able to tender their shares in an open market repurchase since they usually are privy to information that is not available to the general public c.Empirical research suggests that small, retail investors prefer stock repurchases to dividend payments d. a firm does not pay dividends, some institutional investors are prohibited from investing it the firmʹs equity
A. Stockholders can transfer wealth from bondholders. As a finance analyst, you are required to explain how the following actions by stockholders transfer wealth from bondholders. Again, in what ways can the bondholders protect themselves against these actions?i. An increase in dividendsii. A leveraged buyoutiii. Acquiring a risky business B. Why might the two (2) disciplinary mechanisms of shareholders against managers not work? C. Union Pacific Rail road reported net income of $770million after interest expenses of $320 million in a recent financial year. The corporate tax rate was 36%. It reported depreciation of $960 million in that year, and capital spending of $1.2billion. The firm also had $4billion in debt outstanding on the books, was rated AA (carrying a yield to maturity of 8%), and was trading at par (up from $3.8 billion at the end of the previous year). The beta of the stock is 1.05, and there were 200 million shares outstanding (trading at $60 per share), with a book…
One of the three sources of capitol a firm has is offering new equity (stock) to the public. Unlike debt, companies do not have to repay the money raise. So why would a company borrow money instead issuing new stock?
True or False: The following statement accurately describes how firms make decisions related to issuing new common stock. If a firm needs additional capital from equity sources once its retained earnings breakpoint is reached, it will have to raise the capital by issuing new common stock. True: Firms will raise all the equity they can from retained earnings before issuing new common stock, because capital from retained earnings is cheaper than capital raised from issuing new common stock. False: Firms raise capital from retained earnings only when they cannot issue new common stock due to market conditions outside of their control. Sunny Day Manufacturing Company is considering investing in a one-year project that requires an initial investment of $500,000. To do so, it will have to issue new common stock and will incur a flotation cost of 2.00%. At the end of the year, the project is expected to produce a cash inflow of $550,000. The rate of return that…
For each statement indicate whether it is true or false and briefly explain why. a) In a perfect capital market with no corporate taxes, as a firm takes on more and more debt its weighted average cost of capital remains unchanged while its required return on equity rises. b) If a firm issues riskfree debt the risk of the firm’s equity will not change. So, risk-free debt allows the firm to get the benefit of a low cost of debt without raising its cost of equity. c) In the context of firms’ capital structure decisions, the theory predicts that the value of a firm’s equity will rise in direct proportion to the level of debt in its capital structure.
Preferred stock may be good for a company because it a. is not as costly as common stock or bonds. b. expands the capital base of the firm without diluting the common stock ownership. c. has no future negative ramifications when dividend payments are missed. d. does not require interest payment in times of financial trouble, but are tax-deductible when dividends are paid.
Which of the following events is most likely to encourage a firm to INCREASE the amount of debt in its capital structure with other things held constant? Group of answer choices: Management believes that the firm's stock has become overvalued. Its sales become more stable over time. Its degree of operating leverage increases. The costs that would be incurred in the event of bankruptcy increase. The corporate tax rate decreases.
Preferred stocks are characterized by all the following, except voting rights are generally not present and not given to the holders of these stocks the dividends declared for the investors of these stocks are tax deductible to the issuer warrants may be attached to these securities it may be convertible to ordinary or common stock Which of the following would best explain an increase in receivables turnover? The company adopted new credit policies last year and began offering credit to customers with weak credit histories. Due to problems with an error in its old credit scoring system, the company had accumulated a substantial amount of uncollectible accounts and wrote off a large amount of its receivables. To match the terms offered by its closest competitor, the company adopted new payment terms now requiring net payment within 30 days rather than 15 days, which had been its previous requirement.
Which of the following statements about payout policy is FALSE? a. Share repurchases concentrate ownership in the hands of the remaining shareholders, making their shares worth more than they were before the repurchase. b. Firms should generally pay out no more than their free cash flow to equity, unless they are in the process of paying out a large cash balance. c. Dividends typically increase at a slower rate than earnings. d. Firms today return more cash to shareholders through repurchases than through dividends. e. Dividends are lower for firms that have higher growth rates.