8. (TCO 5, 6 and 7) The six percent preferred stock of FKH Manufacturing is sell

Question

8. (TCO 5, 6 and 7) The six percent preferred stock of FKH Manufacturing is selling for $62 a share. What is the firm's cost of preferred stock, if the tax rate is 34 percent and the par value per share is $100? (Points : 4) 5.98% 7.06% 8.05% 9.68% 10.10% 9. (TCO 2) Which one of the following occurs if a firm files for Chapter 7 bankruptcy, but does not generally occur if the firm files for Chapter 11 bankruptcy? (Points : 4) a petition is filed in federal court administrative fees are incurred a list of creditors is compiled pre-bankruptcy shareholders tend to lose part, if not all, of their investment in the firm a trustee-in-bankruptcy is elected by the creditors 10. (TCO 5) Which of the following statements is false regarding the cost of capital? (Points : 4) The cost of capital should consider the flotation costs. All other being equal, it is preferable to use market value weights than book value weights. The WACC is the most appropriate discount rate for all projects. Should include the cost of retained earnings.

Explanation / Answer

8. Cost = (6% * $100) / $62 = 9.68% 9. a petition is filed in federal court administrative fees are incurred a list of creditors 10. Should include the cost of retained earnings

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