Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 15, Problem 4PS
a)
Summary Introduction
To discuss: The following pairs of issues would likely to involve low proportionate administrative and underwriting costs.
b)
Summary Introduction
To discuss: The following pairs of issues would likely to involve low proportionate administrative and underwriting costs.
c)
Summary Introduction
To discuss: The following pairs of issues would likely to involve low proportionate administrative and underwriting costs.
d)
Summary Introduction
To discuss: The following pairs of issues would likely to involve low proportionate administrative and underwriting costs.
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Which of the following statements correctly describe characteristics of preference shares?
Group of answer choices
A. The required return on preference equity is expected to be less than the required return from ordinary equity.
B. None of the other statements are correct
C. A participating preference share participates in the interest payments paid to debtholders.
D. Preference shares are called “hybrid” securities because they display characteristics of both short-term and long-term debt.
Which of the following statements are true
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a. All the options
b. Capital structure depends on the conditions of the market
c. Debt is also called as bond
d. Preference shareholders are given preference at the time of liquidation
e. The capital structure mix does not influence the total earnings of the firm.
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Chapter 15 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 15 - Prob. 1PSCh. 15 - Vocabulary Each of the following terms is...Ch. 15 - Prob. 3PSCh. 15 - Prob. 4PSCh. 15 - Prob. 5PSCh. 15 - Private placements You need to choose between...Ch. 15 - Prob. 7PSCh. 15 - Vocabulary Here is a further vocabulary quiz....Ch. 15 - Venture capital a. A signal is credible only if it...Ch. 15 - Underpricing In same U.K. IPOs, any investor may...
Ch. 15 - Costs of a general cash offer Why are the costs of...Ch. 15 - Prob. 12PSCh. 15 - Underpricing Construct a simple example to show...Ch. 15 - Rights issues In 2012, the Pandora Box Company...Ch. 15 - Prob. 15PSCh. 15 - Prob. 16PSCh. 15 - Issue costs In April 2019. Van Dyck Exponents...Ch. 15 - IPOs Refer to Section 15.1 and the Marvin...Ch. 15 - Prob. 19PSCh. 15 - Prob. 20PSCh. 15 - Prob. 21PSCh. 15 - Dilution Here is recent financial data on Pisa...
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- Indicate whether the following statements are (True) or (False) and correct the false statements: Primary and secondary markets are markets for short-term and long-term securities, respectively. Public offering is the sale of a new security issue, typically bonds or preferred stock, directly to an investor or group of investors. When considering each financial decision alternative or possible action in terms of its impact on the share price of the firm's stock, financial managers should accept only those actions that are expected to increase the firm's profitability.arrow_forwardWhich of the following can be categorized as Short term sources of finance ?i Equity Sharesii Trade Creditiii Debentureiv Money Market Instruments a.Only Equity Shares b.Both Equity Shares and Debentures c.Only Money Market Instruments d.Both Money Market Instruments and Trade Creditarrow_forwardBoth stock and debt returns are based on the cash flows generated by the issuing firm. How do common shareholders and debtholders differ in their claim of the firm’s cash flows? How does such a claim difference cause the risk difference between common stocks and debts (including bonds)? essay formatarrow_forward
- Which of the following statements is not true of the fair-value method of accounting for marketable securities? Select one: A. The investment account is recorded at current fair value on the balance sheet. B. Interim changes in the investments’ fair value may or may not affect income depending on the securities’ classification. C. This method is used when the reporting company generally owns less than 20% of the investee company. D. Dividends are treated as a return of the capital invested. E. None of the abovearrow_forwardWhich is not true of preference shares? * A. Payment of dividends is mandatory if cumulative. B. Preference shares are convertible to ordinary shares or bonds. C. It is similar to debt financing in terms of limited cost payment. D. Cost is higher than cost of bonds.arrow_forwardWhich of the following is a difference between stocks and bonds? Select one: a. cash flows to bondholders are not known and not promised, cash flows to stockholders are known and promised b. companies issue stocks to grow the company and issue debt to pay bills c. required returns on debt are typically lower than required returns on equity d. dividends are legal obligations of the firm; coupons are not. Clear my choicearrow_forward
- Which of the following is False in regards to Share premium account? a. It will be shown under the shareholders equity b. It will be collected when the issue price is more than the par value of shares c. It will be collected when the par value of share is more than the issue price d. It will not be shown under current assets in the balance sheetingarrow_forwardThere are two concepts in respect of working capital Select one: a. None of the options b. Cost of preferred stocks and cost of loans c. Preference share capital and long term assets d. Gross working capital and net working capital e. Cost of bonds and cost of preferred stocksarrow_forwardWhen treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited?Required to answer. Single choice. a. Treasury stock for the par value and retained earnings for the excess of the purchase price over the par value b. Treasury stock for the purchase price c. Treasury stock for the par value and paid-in capital in excess of par for the excess of the purchase price over the par value d. Paid-in capital in excess of par for the purchase pricearrow_forward
- Which of the following statements regarding long-term financing methods is most CORRECT? Group of answer choices: Preferred stock generally has a higher component cost of capital to the firm than common stock. None of these statements are correct. All unpaid cumulative preferred dividends must be paid before any dividends can be paid on the firm’s common stock. The after-tax cost of preferred stock is typically at the same level as that of debt. Convertibles bring in additional funds when they are converted.arrow_forwardWhich of the following statements does correctly explain the effect of additional debt on the weighted average cost of capital (WACC)? Debtholders’ prior and “fixed” claim decreases the risk of stockholders’ “residual” claim, so the cost of stock (rs) goes down. Additional debt decreases the pre-tax of cost of debt (rd) because the decreased risk of bankruptcy. The net effect of additional debt on WACC is to increase WACC. The net effect of additional debt on WACC is uncertain.arrow_forwardCase study: Debt vs. Equity Holders Companies obtain their funds from two sources: debt and equity. The providers of these funds are protected in different ways. Debtholders have specific contracts with the company, and if the company defaults they have recourse ahead of shareholders.Shareholders are the bearers of residual risk and in return for the uncertainty this creates, equity finance is more expensive than debtfinance- reflecting the risk premium and risk appetite of the shareholders. But, because the shareholders come last and it is not clear what they are entitled to, they operate in conditions of an incomplete contract.Question:If the shareholders’ position is not protected by a contract-unlike the provider of debt- how is it in fact made viable? Discuss.arrow_forward
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