Which of the Following Is True of the Call Provision

question 55

Multiple Choice

Which of the following is true of the call provision found in preferred stocks?

• A)The call provision gives preferred stockholders the right to both elect the members of the board of directors and call for votes on corporate issues.
• B)The call provision gives preferred stockholders priority over common stockholders with regard to ownership of the assets of the firm.
• C)The call provision gives preferred stockholders the right to receive preferred dividends that were not paid in previous years before any common stock dividends can be paid.
• D)The call provision gives the issuing firm right to redeem its preferred stock by incorporating a maturity option in the issue.
• E)The call provision gives preferred stock the right to participate with the common stock in a firm's earnings.

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Definitions:

Weighted Average Cost of Capital (WACC)

The average rate of return a company is expected to pay its security holders to finance its assets, weighted according to the proportion of equity and debt in the company's capital structure.

Cost of Equity Financing

This represents the return a company must offer investors to entice investment, effectively the cost of new equity capital.

Required Rate of Return

The least percentage of yearly return needed to entice entities or individuals to invest in a particular project or security.

Average IRR

The mean internal rate of return, calculating the average profitability of investments or projects over time.