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Principles of Managerial Finance, 14e, Global Edition
(Gitman/Zutter)
Chapter 7 Stock Valuation
35) From a corporation's point of view, a disadvantage of
issuing preferred stock is ________.
A) that it increases financial leverageB) that it has to give
fied pa!ments as well as voting rights to the holders") its
ecellent merger securit!#) that the dividends are not
ta$deducti%le
3&) hich of the following is a disadvantage of issuing
preferred stock from the commonstockholders' perspective(A) here is
a seniorit! of preferred stockholder's claim over common
stockholders.B) he preferred stockholders have superior voting
rights in the selection of %oard of directors.") he preferred
stockholders are alwa!s paid a higher proportion of dividend
pa!ments.#) *ssuance of preferred stocks will result in a higher
risk, to the disadvantage of common
stockholders.
3+) A firm has issued cumulative preferred stock with a - par
value and a -/ percent annualdividend. For the past two !ears, the
%oard of directors has decided not to pa! a dividend. At theend of
the current !ear, the preferred stockholders must %e paid ________
prior to pa!ing thecommon stockholders.A) 0shareB) -/0share")
/10share#) 3&0share
-2) egarding the ta treatment of pa!ments to securities holders,
it is true that ________.A) interest and preferred stock dividends
are not ta$deducti%le ,while common stock dividendsare ta
deducti%leB) interest and preferred stock dividends are
ta$deducti%le, while common stock dividends arenot ta$deducti%le")
common stock dividends and preferred stock dividends are
ta$deducti%le, while interest isnot ta$deducti%le#) common stock
dividends and preferred stock dividends are not ta$deducti%le,
while interestis ta$deducti%le
3&) A firm has the %alance sheet accounts, "ommon 4tock and
aid$in "apital in 6cess of ar,with values of -, and /5,,
respectivel!. he firm has -, common sharesoutstanding. *f the firm
had a par value of -, the stock originall! sold for ________.A)
/10shareB) /50share") /&0share#) 30share
-
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6stimate the value of "hina America ?anufacturing's stock.
&) ?ilton @lasses recentl! paid a dividend of -.> per
share, is currentl! epected to grow at aconstant rate of 5, and has
a re=uired return of --. ?ilton @lasses has %een approached to
%u! a new compan!. ?ilton estimates if it %u!s the compan!, its
constant growth rate wouldincrease to &.5, %ut the firm would
also %e riskier, therefore increasing the re=uired return ofthe
compan! to -/. 4hould ?ilton go ahead with the purchase of the new
compan!(A) es, %ecause the value of the ?ilton "o. will increase %!
3.-> per shareB) es, %ecause the value of the ?ilton "o. will
increase %! /.5& per share") es, %ecause the value of the
?ilton "o. will increase %! 1..5+ per share#) Co, %ecause the value
of the ?ilton "o. will decrease %! 3.-> per share
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