Question
option 2) common stock or bonds
option 3) distribute these extra funds or pay a low, constant dividend
MIND TAP Frum Cengage Ch 07: Assignment- Common Stock: Characteristics, Valuation, and Issuance Attempts: Average: 4 2. Characteristics of common stock The true owners of a firm are its common stockholders. As a form of corporate financing, common stock has several distinct characteristics. Based on your understanding of the attributes of common stock, answer the following questions Which of the following is considered a permanent form of long-term financing? O Debt Common stock O Bank loans Assume that you are an investor who prefers the opportunity to earn lerge returns on your investments. In general you would prefer to invest in common stock This is because when companics are able to esrn high profs management tends to increase share prices and investment retums. to the firm's shereholders, which has the potential to In Universal Computer Corp.'s annual report, the company reports retainest earnings of $1,500,000. The company has issuod preterred stock with e per velve of $11 per share. It has 250,000 shares of preferred stock outstanding and 420,000 shares of common stock outstending. It the company repoits total stockhoiders equity of $5,270.000 and no additional paid-in capital, what is the book velue t Universa computer's common stock? O $11.00 per share O $16.12 per share O $9.57 per share O $4.20 per share
Explanation / Answer
Assume that you are an investor who prefers the opporunity to earn large returns on your investments. In general, you would preferto invest in common stock. This is because when companies are able to earn high profits, management tends to distribute these extra funds to the firm's shareholders which has the potential to increase share prices and investment returns Stockholders Equity $6,770,000 Less : Preferred Stock 2750000 $4,020,000 Book Value per share = $4020000/420000 9.57 Book Value of universal computer's common stock $9.57
