Assignment #12 answers

Assignment #12 answers - Answers to Assignment No. 12...

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Answers to Assignment No. 12 Chapter 13- Questions and Problems: Answer to Q 4 a. True. b. False. c. True. Answer to Q 5 Preferred stock is like long-term debt in that it commits the firm to paying the security holder a fixed sum — either a specified coupon payment in the case of bonds or a specified dividend in the case of preferred stock. Like equity and unlike debt, however, failure to pay the dividend on preferred stock does not set off bankruptcy. Answer to Q 9 Lease obligations are like debt in that both legally obligate the firm to make a series of specified payments. Bondholders would like the firm to limit lease obligations for the same reason that they desire limits on debt: to keep the firm’s financial burden at manageable levels and make the already existing debt safer. Answer to Q 12 In general, the fact that preferred stock has lower priority in the event of bankruptcy reduces its price and increases its yield compared to bonds; on the other hand, the fact that the dividend payments are free of taxes to corporate holders increases the price and reduces the yield at which
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This document was uploaded on 03/07/2011.

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Assignment #12 answers - Answers to Assignment No. 12...

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