True or False 5. The corporate valuation model can be used only when a company d

Question

True or False

5. The corporate valuation model can be used only when a company doesn’t pay dividends.

6. From an investor’s perspective, a firm’s preferred stock is generally considered to be less risky than its common stock but more risky than its bonds. However, from a corporate issuer’s standpoint, these risk relationships are reversed: bonds are the most risky for the firm, preferred is next, and common is least risky.

7. The preemptive right is important to shareholders because it protects the current shareholders against a dilution of their ownership interests.

Explanation / Answer

5)False

Reason:corporate valuation model can be used in both cases when company pay dividend and company does not pay dividend

6)True

Reason:As per investors point of view preferred stock is less risky than common stock because they get fixed dividend in preferred stock but there is no certainty of dividend on common stock .

But from company point of view ,preferred stock is more risky than common stock because they have to pay dividend to investors which is not so in common stock.

7)True

Reason:preemptive rights are the rights given to shareholders for subscribing share of company when company puts further issue of shares .preemptive rights protects dilution of their ownership because they only get the right to take shares of company when company is in need of funds.

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