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http: /courses aplia.com af sen et quiz?qur_actionstake uz&qui; C Aplia: Student Question x eChegg Study Guided Solutio. Previous Next |Options X Find: Attempts: Keep the Highest:/5 1. Preferred stock Aa Aa Preferred stock is often called a hybrid security because it has some characteristics that are typical of debt and others that are typical of common equity. The following table lists several characteristics of preferred stock. Determine which of these characteristics are consistent with debt securities and which are consistent with common stock. Characteristic Dividend calculated as a percentage of the par value Usually nonparticipating May be called, or redeemed, prior to the end of its normal life Debt Common stock BTR warehousing is required to repurchase and retire 5% of its preferred stock each year, which type of provision does BTR Warehousing have in its preferred stock agreements? O A call provision O A participating provision O A sinking fund provision For the same issuing firm and on the same day of issuance, which security tends to have a greater after-tax cost to the issuer, debt or preferred stock? Why is this the case? O Preferred stock, because its dividend payments are tax deductible O Debt, because its interest payments are tax deductible Q Debt, because its interest payments are not tax deductible O Preferred stock, because its dividend payments are not tax deductible Flash Player WIN 20,0,0,228 03 3.34 © 2004-2016 Aplia. All rights reserved Session Timeout 58:49 Grade It Now Save & Continue 2013 Cengage Learning except as noted. All rights reserved 12:34 PM 4/8/2016Explanation / Answer
Dividend calculated as a percentage of the par value : Debt. Preferred securities are "hybrid" investments, sharing characteristics of both stocks and bonds. Like stocks, they're generally paid after a company's bonds. Like bonds, however, they usually make regular fixed payments and have a par value that can rise or fall, but is generally the amount promised to an investor when (or if) the securities mature or are repaid. Common stockholders never know the value of their dividends in advance, while preferred stockholders receive dividends at a fixed rate.
Usually non participating : Debt
May be called, or redeemed, prior to end of its normal life : Debt
A Call Provision
Preferred stock because its interest payments are not tax deductible
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