Multiple Classes of Stock Are Primarily Created to

question 24

Multiple Choice

Multiple classes of stock are primarily created to

• A)allow certain shareholders to retain control of a firm.
• B)replace cash dividends with share repurchases.
• C)allow common stock to have cumulative privileges.
• D)eliminate pre-emptive rights.
• E)ensure all shareholders have equal rights.

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Definitions:

Forecasting Risk

The potential for actual outcomes to vary significantly from the predictions or expectations due to changes in variables or conditions.

Replacement

The act of substituting a new asset or item for an old or damaged one.

Internal Rate

Often referring to the internal rate of return (IRR), which is the rate of growth a project is expected to generate, calculated as the rate of discount that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Net Present Value

A financial indicator that determines the variance between the current value of incoming and outgoing cash flows during a specific timeframe.