A couple of the advantages to preferred stock are fixed rate of dividends and no voting rights. Fixed rate of dividends means that whatever the stock is issued at percentage of par when the stock is inquired by the investor is what the dividends will remain when paid by the company. Plus, they make the investor feel more secure in their decision to buy into the company with the knowledge that preferred stockholders are paid first, the amount contracted, and even in terms of liquidation. When speaking of voting rights, stockholders do not have a say in anything the company does and does not do. The company retains its ownership with preferred stock.
Also, with even higher liabilities, it may be difficult to meet the debt service agreements if the company doesn’t have enough cash flow from operations. 1(c) What potential income tax ramifications exist for Mr. Johnson personally if he purchases the stock of Smithon and converts it to an S corporation? If the Mr.Jones decides to convert Smithon to a subchapter S Corporation, it will enable the corporation itself to avoid paying taxes, but the profit and losses will be passed to shareholders as personal income and losses. Now we should consider the expected losses from the huge investment in equipment purchase. Net operating losses cannot be used to shelter personal income but can be carried forward by a C corporation to provide tax benefit in future when the business expects profit.
In a friendly takeover, a public offer of stock or the acquiring firm makes cash, and the board of the target firm will publicly approve the buyout terms, which may yet be subject to shareholder or regulatory approval. This stands in contrast to a hostile takeover, where the company being acquired does not approve of the buyout and fights against the acquisition. There could be
Which one of the following is least apt to help convince managers to work in the best interest of the stockholders?pay raises based on length of service • implementation of a stock option plan • threat of a proxy fight • management compensation tied to the market value of the firm’s stock • threat of a takeover of the firm by unsatisfied stockholders 5. a. Compute the future value of $2,000 compounded annually for 20 years at 4 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Future value $_________ b. Compute the future value of $2,000 compounded annually for 15 years at 10 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Future value $_________ c. Compute the future value of $2,000 compounded annually for 25 years at 4
True b. False 6(9-7) Free cash flows and valuation F G Answer: a EASY [vi]. Projected free cash flows should be discounted at the firm's weighted average cost of capital to find the value of its operations. a. True b.
A tax advantage of business combination can occur when the existing owner of a company sells out and receives: a. cash to defer the taxable gain as a “tax-free reorganization” b. stock to defer the taxable gain as a “tax-free reorganization” c. cash to create a taxable gain d. stock to create a taxable gain 2. Publics Company acquired the net assets of Citizen Company during 20X9. The purchase price was $800,000. On the date of the transaction, Citizen had no long-term investments in marketable equity securities and $400,000 in liabilities. The fair value of Citizen assets on the acquisition date was as follows: |Current assets |$ 800,000 | |Noncurrent assets | 600,000 | | |$1,400,000 | How should Publics account for the $200,000 difference between the fair value of the net assets acquired, $1,000,000, and the cost, $800,000?
Corporations can acquire a treasury stock by not selling all of the shares of the original stock. By keeping some of the share for the company itself, a treasury stock is created. When a company buys shares of its own stock it will actually increase the value of its stock because the shares will be taken out of the marketplace. By having a treasury stock it also can allow a company to generate cash if it is needed. A treasury stock can affect stockholders because if the company decides to sell the stock then the equity will decrease and the overall assets will also
The dividends qualifying for the dividends-received deduction are those dividends paid by domestic corporations subject to the corporate income tax. Only dividends paid out of a corporation's earnings and profits qualify for the dividends-received deduction. Dividends-received deduction is equal to the relevant percent (70% or 80%, depending on ownership) times the lesser of: (1) dividends received from taxable, unaffiliated domestic corporations or (2) the firm's taxable income, as adjusted Page 60 of bookshelf. 14- 51 What is the purpose of the reconciliation of taxable income with book income? The purpose of the reconciliation of taxable income with book income would be to determine temporary and permanent differences.
2. What is IPO underpricing? If you decide to try to buy shares in every IPO, will you necessarily make money from the underpricing? Underpricing refers to the fact that, on average, underwriters pick the IPO issue price so that the average first-day return is positive. If you followed a strategy of placing an order for a fixed number of shares on every IPO, your order will be completely filled when the stock price goes down, but you will be rationed when it goes up.
Shareholders would be able to exchange existing shares for new shares, and receive 20$ per share cash or equivalent in new common shares. It should be noted that capital gains tax apply. As an institutional investor, we are not in favor of the Ford Value enhancing plan. Through fundamental analysis, we can see that this plan would decrease enterprise value (lowering cash/equity), decrease Ford liquidity, and with dilute voting rights of common shareholders. Under the agreement, the Ford family is able to keep their 40% voting power, while effectively lowering their 4.9% equity position to 3.6%.