Question 1 You are told that one corporation just issued $100 million of preferred stock and another purchased $100 million of preferred stock as an investment. You are also told that one firm has an effective tax rate of 20%, whereas the other is in the 35% bracket. Which firm is more likely to have brought the preferred stock? Explain. Question 2 a. How would a firm's decision to pay out a higher percentage of its earnings as dividends affect each of the following? (1) The value of its long-term warrants. (2) The likelihood that its convertible bonds will be converted. (3) The likelihood that its warrants will be exercised. b. If you owned the warrants or convertibles of a company, would you be pleased or displeased if it raised its payout rate from 20% to 80%? Why? Question 3 Gregg Company recently issued two types of bonds. The first issue consisted of 20- year straight (no warrants attached) bonds with an 8% annual coupon. The second issue consisted of 20-year bonds with a 6% annual coupon with warrants attached. Both bonds were issued at par ($1,000). What is the value of the warrants that were attached to the second issue? Question 4 Hughes Computer Fouin