Question
In: Finance
What is a dual-class firm? Why do firms typically issue dual classes of common stock?
What is a dual-class firm? Why do firms typically issue dual
classes of common stock?
Solutions
Expert Solution
Sol:
A common stock provides the investor ownership rights in an organization. A firm can issue more than one class of common stock with different voting rights and dividend rights for each class is typically known as a dual class firm. It basically consists of two or more share classes with unequal voting and dividend rights.
Firms typically issue dual classes of common stock for the following reasons:
1) It allows the companies to raise funds from secondary market without losing the control of the firm.
2) It help's firms to expand business growth in new sectors by raising funds more efficiently.
3) It helps startup technology firms to raise capital for growth, as they often don’t have a proven market and the expertise required is very specialized and in most cases restricted to founders of the firm.
4) It helps the founders to have greater control on the firm and enable them to take swift actions on key decisions required for the overall growth of the firm.
jeff jeffy answered 1 year agoRelated Solutions
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Hill Corporation is organized with two classes of voting common stock: Class A and Class B....
Hill Corporation is organized with two classes of voting common
stock: Class A and Class B. Shares in each class of stock have an
equal right to Hill’s assets and earnings and profits. Frank owns
100 shares of Class A stock, and Fay and Joyce each own 50 shares
of Class B stock. Assuming that Hill Corporation has ample earnings
and profits, determine whether the following distributions are
taxable under § 301 or excludable under § 305(a):
Answer for d-i?...
Hill Corporation is organized with two classes of voting common stock: Class A and Class B....
Hill Corporation is organized with two classes of voting common
stock: Class A and Class B. Shares in each class of stock have an
equal right to Hill’s assets and earnings and profits. Frank owns
100 shares of Class A stock, and Fay and Joyce each own 50 shares
of Class B stock. Assuming that Hill Corporation has ample earnings
and profits, determine whether the following distributions are
taxable under § 301 or excludable under § 305(a):
(a)A pro rata...
Hill Corporation is organized with two classes of voting common stock: Class A and Class B....
Hill Corporation is organized with two classes of voting common
stock: Class A and Class B. Shares in each class of stock have an
equal right to Hill’s assets and earnings and profits. Frank owns
100 shares of Class A stock, and Fay and Joyce each own 50 shares
of Class B stock. Assuming that Hill Corporation has ample earnings
and profits, determine whether the following distributions are
taxable under § 301 or excludable under § 305(a):
Answer for d-i?...
1. Why do firms issue debt instead of only issuing equity? 2. Why do firms focus...
1. Why do firms issue debt instead of only issuing equity?
2. Why do firms focus on capital structure?
3. What do you think of a high profit firm like Microsoft with
over 200 billion of cash and marketable securities on its balance
sheet, would issue debt?
1. Why do firms issue debt instead of only issuing equity? 2. Why do firms focus...
1. Why do firms issue debt instead of only issuing equity?
2. Why do firms focus on capital structure?
3. What do you think of a high profit firm like Microsoft with
over 200 billion of cash and marketable securities on its balance
sheet, would issue debt?
Cost of Capital: Cost of New Common Stock If a firm plans to issue new stock,...
Cost of Capital: Cost of New Common Stock
If a firm plans to issue new stock, flotation costs (investment
bankers' fees) should not be ignored. There are two approaches to
use to account for flotation costs. The first approach is to add
the sum of flotation costs for the debt, preferred, and common
stock and add them to the initial investment cost. Because the
investment cost is increased, the project's expected return is
reduced so it may not meet the...
why do companies issue preferred stock, explain why.
why do companies issue preferred stock, explain why.
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