9. Which of the following statements is NOT CORRECT?


a. Owners of preferred stock have greater voting rights than common shareholders.

b. From an individual investor's perspective, preferred stock is riskier than bonds.

c. Companies are more likely to issue preferred stock if they have a low tax bracket since preferred stock dividends are not tax deductible.

d. If a preferred issue is cumulative this means that any unpaid dividends are held in arrears.

10. As a general rule, the optimal capital structure

  1. Maximizes expected EPS also maximizes the price per share of common stock.
  2. Minimizes the interest rate on debt also maximizes the expected EPS.
  3. Minimizes the required rate on equity also maximizes the stock price.
  4. Maximizes the price per share of common stock and minimizes the WACC.

11. Which of the following statements about warrants and convertibles is NOT CORRECT?

a. The value of both warrants and convertibles depends on the stock price.

b. One primary difference between warrants and convertibles is that warrants bring in additional funds to the firm when exercised while convertibles reduce debt when exercised.

c. The coupon rate on convertible debt is higher than the coupon rate on similar straight debt because convertibles are riskier.

d. Warrants and Convertibles are used by corporations in order to get a lower rate on their debt.

12. In the lease versus buy decision, leasing is often preferable

a. if the firm is unable to borrow funds at a low rate.

b. if the firm needs a specific piece of equipment that only has value to that firm.

c. Because lease obligations do not affect the riskiness of the firm.

d. if the lessee has a higher tax rate than the lessor

13. Which statement is False?

  1. The WACC is the required return on the firm

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Jean Keeling
Jean KeelingLv2
28 Sep 2019

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