Finance Question 1: Outline the differences between common stock and preferred s

Question

Finance

Question 1: Outline the differences between common stock and preferred stock?

Question 2: What are the differences between capital projects that are independent, mutually exclusive, and contingent?   

Question 3: Cortez Art Gallery is adding to its existing buildings at a cost of $2 million. The gallery expects to bring in additional cash flows of $520,000, $700,000, and $1,000,000 over the next three years. Given a required rate of return of 10 percent, what is the NPV of this project?

I want answers not answered before in chegg please   

Explanation / Answer

Answer 1

Common shares represent an ownership interest in a company and are the predominant type of equity security. As a result, investors share in the operating performance of the company, participate in the governance process through voting rights, and have a claim on the company’s net assets in the case of liquidation. Companies may choose to pay out some, or all, of their net income in the form of cash dividends to common shareholders, but they are not contractually obligated to do so.

Voting rights provide shareholders with the opportunity to participate in major corporate governance decisions, including the election of its board of directors, the decision to merge with or take over another company, and the selection of outside auditors. Shareholder voting generally takes place during a company’s annual meeting.

Preference shares (or preferred stock) rank above common shares with respect to the payment of dividends and the distribution of the company’s net assets upon liquidation. Preference shareholders do not share in the operating performance of the company and generally do not have any voting rights, unless explicitly allowed for at issuance. Preference shares have characteristics of both debt securities and common shares. Similar to the interest payments on debt securities, the dividends on preference shares are fixed and are generally higher than the dividends on common shares. However, unlike interest payments, preference dividends are not contractual obligations of the company.

Answer 2

Independent projects are projects whose cash flows are independent of each other. Mutually exclusive projects compete directly with each other. For example, if Projects A and B are mutually exclusive, you can choose A or B, but you cannot choose both

Contingent option are dependent project that is if one investment is made it will result in other investment as well.

Answer 3

Using Financial Calculator

CF0=-2000000             (press enter)   Press Down key

CF1=520000               (press enter)   Press Down key

F01=1                          (press enter)   Press Down key

CF2=700000               (press enter)   Press Down key

F02=1                           (press enter)   Press Down key

CF3=1000000             (press enter)   Press Down key

Press NPV

Interest =10       (press enter)   Press Down key

Scroll down press CPT

Press CPT and NPV

NPV=-197445.53

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