Common Stock Essay

interview 1.1. (TCO D) Which of the following statements concerning common banal and the investment banking process is NOT CORRECT?(a) The preemptive right gives severally existing common stockholder the right to purchase his or her proportionate share of a youthful stock counter.(b) If a firm sells 1,000,000 impudently shares of Class B stock, the transaction occurs in the primary market.(c) Listing a giving firms stock is often considered to be sound to stockholders because the summations in liquidity and reputation probably outweigh the additional cost to the firm.(d) Stockholders have the right to elect the firms directors, who in countermand select the officers who manage the business. If stockholders are dissatisfied with managements performance, an alfresco group may ask the stockholders to vote for it in an effort to press control of the business. This action is called a tender offer.(e) The announcement of a large issue of new stock could cause the stock price t o fall. This difference is called market pressure, and it is treated as a flotation cost because it is a cost to stockholders that is associated with the new issue. (Points 20)Answer d.Question 2.2. (TCO D) The City of Charleston issued $3,000,000 of octette percent coupon, 30-year, semiannual allowancement, tax income-exempt muni alignments 10 long time ago. The bonds had 10 years of call protection, but now the bonds can be called if the city chooses to do so. The call premium would be six 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 2 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 bee n amortizing $3 million of flotation costs on these bonds over their 30-year life. The company could sell a new issue of 25-year bonds at an annual interest regularize of 11.67 percent in nows market. A call premium of 14 percent would be required 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 savings be if refunding takes place?Answer c(a) $6,480(b) $7,200(c) $8,000(d) $8,800(e) $9,680 (Points 20)