Preferred stock is similar to common stock in the knowing way: both preferred st
ID: 2744364 • Letter: P
Question
Preferred stock is similar to common stock in the knowing way: both preferred stock and common stock provide equal periodic dividends both investments have a final maturity value set by the issuing agreement both contain a dividend growth factor as equity, both are subordinate to bondholders in the event of bankruptcy retards. Inc. is considering two mutually exclusive protects. A and B Project A costs $75,000 and is expected to generate incomes of $48,000 at the end of year one and $45,000 at the end of year two. Project B costs $80,000 and is expected to generate incomes of $34,000 at the end of year one. $37,000 at the end of year two, $26,000 at the end of year three, am $25,000 at the end of year tour. retards. Inc.'s required rate of return for these projects is 10% The net present value for is: $ 5.826 $ 6.347 $ 9.458 $18,000 J&B; Corp. is investing in a major capital budgeting project that will require the expenditure of $20 million The mores raised by issuing $5 million of bonds, $3 million of preferred stock, and $12 million of common slack The company yes after-tax cost of debt to be 5%. its cost of preferred stock to be 9%, and the cost of new common stock to be 16%. W weighted average cost of capital for this project? 12.20% 11.90% 10.75% 10.00% Butter Corp pad a dividend today of $3.50 per share. The dividend is expected to grow at a constant rate of 8% per Butler Corp stock is selling for $75.60 per share, the stockholders expected rate of return is. 12.63% 12.53% 13.00% 14.38%Explanation / Answer
Solution for question 6
Face value of bond = $1,000
Annual Coupon rate = 9%
Annual interest payment = $1,000 × 9%
= $90
Annual Interest payment is $90.
Hence, Option (A) is correct answer.
Solution for Question 7
Callable bond are type of bond which can be redeem before maturity by paying extra redeem premium. The can be called when interest rate decreases.
Hence, Option (A) is correct answer.
Solution for Question 8
Annual dividend = $3
Required rate of return = 15%
The price of stock = Current Dividend / Required rate of return
= $3 / 15%
= $20
So stock price of company is $20.
Hence, Option (C) is correct answer.
Solution for Question 9
Preferred stock has some characteristics of equity and some characteristics of debt. Company are obliged to pay annual dividend which fixed. At time of liquidation of company, preferred share holder has more preference over common equity holder.
Common characteristic between preferred stock and common stock is both are subordinates to bondholder in even of bankruptcy.
Hence, Option (D) is correct answer.