A small biotechnology research corporation has been experiencing losses for the first three years of its existence, and thus has a negative balance in retained earnings. The corporation's stock price, however, is $1 per share. Which of the following statements is most correct? Investors are irrational to pay $1 per share when earnings per share have been negative for three years. Investors believe the stock is worth $1 per share because future earnings (and cash flows) are expected to be positive. The corporation's accountants must have made a mistake because retained earnings may not be negative. The required return on the stock will be small because the company has very few assets. Stocks A and B have the same price and are in equilibrium, but Stock A has the higher required rate of return. Which of the following statements is CORRECT? If Stock A has a lower dividend yield than Stock B, its expected capital gains yield must be higher than Stock B's. Stock B must have a higher dividend yield than Stock A. Stock A must have a higher dividend yield than Stock B. If Stock A has a higher dividend yield than Stock B, its expected capital gains yield must be lower than Stock B's. Stock A must have both a higher dividend yield and a higher capital gains yield than stock B. Which of the following statements is CORRECT? A major disadvantage of financing with preferred stock is that preferred stockholders typically have supernormal voting rights. Preferred stock is normally expected to provide steadier, more reliable income investors than the same firm's common stock, and. as a result, the expected after-tax yield on the preferred is lower than the after-tax expected return on the common stock. The preemptive right is a provision in all corporate charters that gives preferred stockholders the right to purchase (on a pro rata basis) new issues of preferred stock. One of the disadvantages to a corporation of owning preferred stock is that 70% the dividends received represent taxable income to the corporate recipient, when interest income earned on bonds would be tax free. One of the advantages to financing with preferred stock is that 70% of the dividends paid out are tax deductible to the issuer