Common Stock Essay

Question 1.1. (TCO D) Which of the following statements concerning common stock and the enthronization banking process is NOT CORRECT?(a) The preemptive right gives each living common stockholder the right to purchase his or her proportionate destiny of a new stock release.(b) If a firm sells 1,000,000 new shares of crystallise B stock, the transaction occurs in the primary mart.(c) Listing a vast firms stock is often considered to be beneficial to stockholders because the increases in liquidity and reputation probably outweigh the additional embodys to the firm.(d) Stockholders keep up the right to elect the firms directors, who in turn remove the officers who manage the business. If stockholders are dissatisfied with managements performance, an outside assort may ask the stockholders to vote for it in an effort to take watch of the business. This action is discovered a tender offer.(e) The announcement of a large growth of new stock could cause the stock price to fall. This loss is crabed market pressure, and it is treated as a flotation cost because it is a cost to stockholders that is associated with the new outgrowth. (Points 20)Answer d.Question 2.2. (TCO D) The City of Charleston issued $3,000,000 of eight per centum coupon, 30-year, semiannual payment, tax-exempt muni bonds 10 years ago. The bonds had 10 years of call protection, only if now the bonds can be called if the city chooses to do so. The call premium would be sixer pct of the face amount. sassy 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 net present value of the refunding? Note that cities pay no income taxes, hence taxes are not 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 issued five years ago. It has been amortizing $3 million of flotatio n costs on these bonds over their 30-year life. The company could sell a new issue of 25-year bonds at an annual interest rate of 11.67 percent in todays market. A call premium of 14 percent would be unavoidable to retire 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 will the net increase or decrease in the annual flotation cost tax nest egg be if refunding takes place?Answer c(a) $6,480(b) $7,200(c) $8,000(d) $8,800(e) $9,680 (Points 20)