Preferred stock

calculating the cost of capital if a firm were planning two issue two different classes of common stock? Solution: As the two different classes of common stock are likely to have different component costs, calculate the cost and weight for each separately. LG2 11-2 Why don’t we multiply the cost of preferred stock by 1 minus the tax rate, as we do for debt? Solution: Because dividends on preferred stock, unlike interest on debt, are paid out of after-tax income. LG2 11-3 Expressing WACC in

Most of the time the price of the preferred dividends is higher than the common stock because there is more risk for investors but there is also more payoff if it does well. 4. 1.50 * (1+10%)=1.65 1.65 / (10%-1%)= $18.33 IF the required rate of return increases from 8.1% to 10% then the current share price of common stock with decrease from $21.41 to $18.33. As the price of the stock increases this can be riskier for the investor. But with higher risk the

Assignment ACC 206 1. Analysis of stockholders' equity 1. Preference stock (100 par value) issued during 20X6 = 580,000 – 500,000 = $80,000 Number of preference shares issued during 20X6 = Par value of preferred shares issued / Par value per share of preferred shares = 80,000 / 100 = 800 shares 2. Common stock (10 par value) sold in 20X6 = 2,350,000 – 1,750,000

Preferred dividends are generally fixed they can be valued as a constant growth rate of zero. You use the zero growth models for the preferred stock and the assumption that the dividends always stay the same and you use the constant growth model for common stock because the dividend grows by a specific percent a year. 4. What would happen with the price you computed above if

Kim Witten Course Project Part I Task 1 1. National First (Prime rate is 3.25%) +6.75% = 10% Semiannually EAR = (1+.10/2) ^2 – 1 which is 10.25 Regions Best Rate is 13.17% Monthly EAR = (1+.1317/12) ^12 – 1 which is 13.99 2. I think that between National First and Regions Best that National first offers the lower rate after computing the EAR. National first is also only compounded semiannually making it lower then Regions Best. The only thing I worry about it the prime rate changing

Case 72 Swan-Davis, Inc. Bond and Stock Valuation Swan-Davis, Inc. (SDI) manufactures equipment for sale to large contractors. The company was founded in 1976 by Tom Stone, the current chairman, and it went public in 1980 at $1 per share. The stock currently sells for $15, Stone owns 14 percent of the shares, and other officers and directors control another 13 percent. The industry is cyclical, and competition is strong, so profits are some-what unstable. Tables 1, 2, and 3 provide historical

optimal: Debt 25% Prefered stock 15 Common equity 60 ---- 100% LEI’s expected net income this year is $34,285,72; its establish dividend payout ratio is 30 percent; its federal-plus-state tax rate is 40%; and investors expect earnings and dividends to grow at a constant rate of 9 percent in the future. LEI paid a dividend of $3.60 per share last year and its stock currently sells at a price of $60 per share

CHAPTER 6 Review Questions: 6-2 What is the term structure of interest rates, and how is it related to the yield curve? Term structure interest rate is a rate which relates the interest rate or rate of return to the time to maturity. The yield curve is a graph of relationship between the debt’s remaining time to maturity and its yield to maturity. Term structure of interest rate can be shown graphically by yield curve. The shape of the yield curve will show the useful ways to future interest

Received: 52 / 100  (52%) Question Type: # Of Questions: # Correct: Multiple Choice 9 5 Essay 1 N/A Grade Details - All Questions  1. Question : (TCO D) A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%, and the constant growth rate is g = 4.0%. What is the current stock price?   Student Answer: $23.11   $23.70   $24.31   $24.93   $25.57   Instructor Explanation: Chapter 7 D0

1/15/12. Their corporate charter authorized the following capital stock:

 Preferred Stock: 7%, par value $100 per share, 100,000 shares.

 Common Stock: $1 par value, 500,000 shares.



The following transactions occurred during the year:



1/19/12 – Issued 100,000 shares of common stock for $17 cash per share.

1/31/12 – Issued 3,000 shares of preferred stock for $115 cash per share.

11/1/12 – Repurchased 30,000 shares of common stock for $22 cash per share.

12/1/12 – Declared and paid a total dividend