1. Which of the following statements is correct?

a. Preferred stock is not legally a form of equity and preferred stock dividends are paid by the issuer with before-tax dollars.

b. Common stock dividends are declared by the board of directors, and a board may or may not decide to pay a cash dividend at a particular time.

c. All the answers are correct.

d. Preferred stock does not represent an ownership interest in the corporation, but as the name implies, preferred stock receives no preferential treatment over common stock.

e. The payments of preferred stock dividends are contractual obligations.

2. Which of the following statements is incorrect?

a. Most of the answers are correct except one.

b. The payments of preferred stock dividends are not contractual obligations.

c. Preferred stock with no fixed maturity can be valued as a perpetuity.

d. The payments of preferred stock dividends are contractual obligations.

e. Common-stock holders have the right to vote on the selection of the board of directors for the firm.

3. Which of the following statements is correct?

a. The payback method computes the return on a capital project using accounting numbers, the project's net income (NI) and book value (BV), rather than cash flow data.

b. The NPV makes it possible to correctly choose between independent projects.

c. The IRR is based on accounting numbers and ignores the time value of money.

d. All the answers are correct.

e. When two projects are mutually exclusive, accepting one project implicitly eliminates the other.