Common Stock Essay

dubiousness 1.1. (TCO D) Which of the following statements concerning car park blood and the coronation banking process is NOT CORRECT?(a) The preventative right gives each existing common stockh obsoleteer the right to purchase his or her proportionate share of a youthful stock surface.(b) If a firm sells 1,000,000 sensitive shares of Class B stock, the trans work occurs in the primary market.(c) Listing a enlarged firms stock is oft considered to be beneficial to stockholders because the increases in fluidness and reputation probably outweigh the supererogatory comprises to the firm.(d) Stockholders have the right to pick out the firms directors, who in wreak select the officers who manage the business. If stockholders are dissatisfy with managements performance, an outside theme may ask the stockholders to vote for it in an effort to take control of the business. This action is called a tender offer.(e) The announcement of a large issue of new stock could cause th e stock price to fall. This outrage is called market pressure, and it is treated as a floatation embody because it is a cost to stockholders that is associated with the new issue. (Points 20)Answer d.Question 2.2. (TCO D) The urban center of Charleston issued $3,000,000 of eight percent coupon, 30-year, periodical earningsment, tax-exempt muni bonds 10 years ago. The bonds had 10 years of call protection, but instantaneously the bonds can be called if the city chooses to do so. The call premium would be sextette percent of the face amount. new-fashioned 20-year, six percent, semiannual payment bonds can be sold at par, but flotation cost on this issue would be two percent of the amount of bonds sold. What is the lucre present value of the refunding? Note that cities pay no income taxes, hence taxes are non relevant.Answer aQuestion 3.3. (TCO D) New York Waste (NYW) is considering refunding a $50,000,000, annual payment, 14 percent coupon, 30-year bond issue that was issu ed five years ago. It has been amortizing $3 million of flotation costs on these bonds over their 30-year life. The f roamrnity could sell a new issue of 25-year bonds at an annual interest appraise of 11.67 percent in todays market. A call premium of 14 percent would be required to adjourn the old bonds, and flotation costs on the new issue would amount to $3 million. NYWs marginal tax rate is 40 percent. The new bonds would be issued whenthe old bonds are called.The amortization of flotation costs reduces taxes, and thus provides an annual cash flow. What willing the net increase or shine in the annual flotation cost tax savings be if refunding takes shopping centre?Answer c(a) $6,480(b) $7,200(c) $8,000(d) $8,800(e) $9,680 (Points 20)