1. Why do companies tend to issue preferred stock less then commons stock and bonds?

Multiple Choice

a) Preferred stock typically has cumulative dividends.

b) Flotation cost of preferred stock is low compared to bonds.

c) Preferred dividends are considered regular (fixed) obligations but are not tax-deductible.

d) Preferred shareholders are entitled to receive stipulated dividends before common shareholders.

2. Dilution in earnings per share occurs when a company with:

Multiple Choice

a) a high P/E ratio buys a company with a low P/E ratio.

b) a low P/E ratio buys a company with a high P/E ratio.

c) a low growth rate in earnings per share buys a company with a high growth rate in earnings per share.

d) a high growth rate in earnings per share buys a company with a low growth rate in earnings per share.