Question

In: Finance

Rank the sources of long-term capital from least to most expensive for the firm. Preferred stock,...

Rank the sources of long-term capital from least to most expensive for the firm.

Preferred stock, common stock, debt

Debt, preferred stock, common stock

Common stock, preferred stock, debt

Debt common stock, preferred stock

Solutions

Expert Solution

Common stock, Preferred stock and debt are sources of Long term capital for a company.

Long term Debt - These type of funds borrowed by a company at a fixed rate of interest. The company have to pay interest even if there are no profits.

Preferred stock- These type of capital may also have a fixed rate of dividend but it is not necessary to pay a dividend in the case of loss. Perferred stockholder has a right to get a dividend before common stockholders if the company distribute the profits. And the company also defer the payment of dividend.

Common stock- It is upon company to pay a dividend to common stockholders. If there are business opportunities are available than a company may invest the whole earning. So it is not necessary to pay any sum to common stockholders even if there are profits available.

Least to the most expensive source of the long-term fund-

1. Common stock

2. Preferred stock

3. Debt

Option C is correct.

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Zacks's target capital structure is 39% long-term debt, 11% preferred stock, and 50% equity. The firm...
Zacks's target capital structure is 39% long-term debt, 11% preferred stock, and 50% equity. The firm has one outstanding 16.92% bond issue that matures on May 13, 2035, makes semiannual payments, and currently sells for $900 per bond. Assume that May 13, 2020, is the settlement date for the bond issue. Odarian's preferred stock pays an annual dividend of $15.32 and currently sells for $93.34. The company's common stock's returns have a covariance of 0.00467206952 with the market's returns. The...
Source of Capital Proportions Long-term debt 30% Preferred stock 5% Common stock equity 65% Debt: The...
Source of Capital Proportions Long-term debt 30% Preferred stock 5% Common stock equity 65% Debt: The firm can sell a 10-year, $1,000 par value, 7 percent bond for $950. A flotation cost of 3percent of the par value would be required in addition to the discount of $50. Preferred Stock: The firm has determined it can issue preferred stock at $45 per share par value. The stock will pay an $6.5 annual dividend. The cost of issuing and selling the...
Target Market Source of Capital Proportions Long-term debt 30% Preferred stock 5% Common stock equity 65%...
Target Market Source of Capital Proportions Long-term debt 30% Preferred stock 5% Common stock equity 65% Debt: The firm can sell a 10-year, $1,000 par value, 7 percent bond for $950. A flotation cost of 3percent of the par value would be required in addition to the discount of $50. Preferred Stock: The firm has determined it can issue preferred stock at $45 per share par value. The stock will pay an $6.5 annual dividend. The cost of issuing and...
Target Market Source of Capital Proportions Long-term debt 30% Preferred stock 5% Common stock equity 65%...
Target Market Source of Capital Proportions Long-term debt 30% Preferred stock 5% Common stock equity 65% Debt: The firm can sell a 10-year, $1,000 par value, 7 percent bond for $950. A flotation cost of 3percent of the par value would be required in addition to the discount of $50. Preferred Stock: The firm has determined it can issue preferred stock at $45 per share par value. The stock will pay an $6.5 annual dividend. The cost of issuing and...
Rank the following from most isotropic to least isotropic. Unidirectional Long Fiber Random short Fiber Randon...
Rank the following from most isotropic to least isotropic. Unidirectional Long Fiber Random short Fiber Randon long fiber (not woven) Oriented short Fiber
Discuss the various sources of long-term finances (Common stock, Preference stock, Bonds) with reference to their...
Discuss the various sources of long-term finances (Common stock, Preference stock, Bonds) with reference to their risk and return.
3. Long term capital structure of company KL is given below: Sources of capital Book value...
3. Long term capital structure of company KL is given below: Sources of capital Book value ($ 000) Debts 20,000 Preferred stock 5,000 Common stock 7,500 Reserves (re) 17,500 Total capital 50,000 The interest rate for debt is overall 10%, dividend for common stock is $1.3 and $1.5 for preferred stock per share, respectively. Preferred -and stock price is $10 per share, growth rate is 0.06. Suppose that the average income tax ratio is 25 % and the corporate tax...
3. Long term capital structure of company KL is given below: Sources of capital Book value...
3. Long term capital structure of company KL is given below: Sources of capital Book value ($ 000) Debts 20,000 Preferred stock 5,000 Common stock 7,500 Reserves (re) 17,500 Total capital 50,000 The interest rate for debt is overall 10%, dividend for common stock is $1.3 and $1.5 for preferred stock per share, respectively. Preferred -and stock price is $10 per share, growth rate is 0.06. Suppose that the average income tax ratio is 25 % and the corporate tax...
Using debt and preferred stock in the capital structure of a firm will _____. decrease business...
Using debt and preferred stock in the capital structure of a firm will _____. decrease business risk increase the book value of common stock increase the tax payable by the firm. increase financial risk decrease operating leverage
1. The target capital structure for a firm is 40% common stock, 10% preferred stock and...
1. The target capital structure for a firm is 40% common stock, 10% preferred stock and 50% debt. If the cost of common equity is 18%, the cost of preferred stock is 10%, the before-tax cost of debt is 8%, and the firm’s tax rate is 35%. What is its weighted average cost of capital? Indicate the detailed steps on how to use a FINANCIAL CALCULATOR to solve the problems.
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT