question archive 1) Which of the following is not an advantage of going public? a
1) Which of the following is not an advantage of going public? a
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1) Which of the following is not an advantage of going public?
a. It allows a firm's founders to diversify their holdings.
b. It increases the liquidity of the stock.
c. It establishes a value for the firm.
d. It makes it easier to raise new equity capital in the future.
e. All of the above are advantages of going public.
2) Which of the following factors will increase the likelihood that a company will choose to call its outstanding bonds?
a. An increase in the yield to maturity on the company's outstanding bonds,
b. An increase in the call price of the outstanding bonds.
c. A reduction in the flotation costs associated with issuing new bonds.
d. Answers a and c are correct.
e. None of the answers above is correct.
3) T/F: Because preferred stock dividends are not tax deductible, the cost of preferred stock to the issuing firm is the same on a before-tax and after-tax basis.
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Answer:
1) e. All the statements are correct.
2) e. None of the answers is correct. The bonds would be called only if the interest rates decline sharpely and yield to call is lower than yield to maturity.
3) True. Cost of preferred stock is same on a before and after-tax basis.
