Common stockholders: a) have a residual claim on both income and assets. b) have a higher claim on assets than preferred stockholders c) are last in line in the event of bankruptcy d) Both A & B e) Both A & C f) Both B &C g) All of the above
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Common stockholders:
a) have a residual claim on both income and assets.
b) have a higher claim on assets than preferred stockholders
c) are last in line in the event of bankruptcy
d) Both A & B
e) Both A & C
f) Both B &C
g) All of the above
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- Which of the following will have the first claim on assets when the bankruptcy occurs Select one: creditors equity stockholders None of the answers are correct preferred stockholdersOwners of preferred stock are not guaranteed any dividend payments and have the lowest-priority claim on the firm’s assets in the event of bankruptcy. True FalseAssume that a firm had such serious financial problems that it was about to be liquidated after a bankruptcy. All of the firm's assets are about to be sold in order to pay the following claims against the firm: bondholders, preferred stockholders, common stockholders, and federal income taxes. Of the claims mentioned, what priority would common stockholders have? A. first B. third C. second D. fourth
- Choose the incorrect statement below: A. Retained earnings are the funds contributed by shareholders in excess of par or stated value.B. Equity is defined as the residual interest in the assets of an entity after deducting all of the liabilities.C. Conversion of preference shares into ordinary shares directly affects retained earnings.D. The statement of changes in equity is a formal statement that shows the movements in the elements or components of the shareholders' equity.The par value of common stock represents a. the estimated fair value of the stock when it was issued. b. the liability ceiling of a shareholder when a company undergoes bankruptcy proceedings. c. the total value of the stock that must be entered in the issuing corporation’s records. d. the amount that must be recorded on the issuing corporation’s record as paid-in capital.Choose the correct. Which of the following is necessary for a company to use fresh start accounting?a. The previous owners must hold at least 50 percent of the stock of the company when it emerges from bankruptcy.b. The reorganization value of the company must exceed the value of all assets.c. The reorganization value of the company must exceed the value of all liabilities.d. The original owners must hold less than 50 percent of the stock of the company when it emerges from bankruptcy.
- Which feature is not applicable to common stock ownership?a. Right to receive dividends before preferred stockshareholders.b. Right to vote on appointment of external auditor.c. Right to receive residual assets of the company shouldit cease operations.d. All of the above are applicable to common stockownership.Which one of the following events must occur before a firm can offer a liquidating dividend? A. Negative equity B.Insolvency declaration C. Asset sale D. Failed bond issueFrom the issuing firm's point of view, one advantage of preferred stock over bonds is A) preferred dividends are a deductible expense for tax purposes. B) preferred voting privileges concentrate power in the hands of managers and major shareholders. C) a dividend payment can be skipped without triggering bankruptcy. D) all of the above
- Indicate whether each of the following statements is true or false. Support your answers with the relevant explanations. In the presence of bankruptcy risk, the cost of capital of a company with debt is always higher than the cost of capital of an unlevered company. (Explain your reasoning – in your explanation, provide a numerical example supporting your answer.)Which of the following statements is CORRECT? a. The preferred stock of a given firm is generally less risky to investors than the same firm's common stock. b. Corporations cannot buy the preferred stocks of other corporations. c. Preferred dividends are not generally cumulative. d. A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation. e. Preferred stockholders have a priority over bondholders in the event of bankruptcy to the income, but not to the proceeds in a liquidation.Indicate whether the following statement is true or false.Provide the relevant explanations. In the presence of bankruptcy risk, the cost of capital of a company with debt is always higher than the cost of capital of an unlevered company. (Explain your reasoning – in your explanation, provide a numerical example supporting your answer.)