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How does a firm's dividend policy affect each of the following ?

19-4 How do you think each of the following items would affect a company's ability to attract new capital and the flotation costs involved in doing so?

a) A decision of a privately held company to go public.

b) The increasing institutionalization of the "buy side" of the stock and bond markets.

c) The trend toward "financial conglomerates" as opposed to stand-alone investment banking houses.

d) Elimination of the preemptive right.

e) The introduction of "shelf registrations" in 1981.

19-5 Before entering a formal agreement, investment bankers carefully investigate the companies whose securities they underwrite, this is especially true of the issues of firms going public for the first time. Since the Bankers do not themselves plan to hold the securities but intend to sell them to others as soon as possible, why are they so concerned about making careful investigations?

19-6 It is frequently stated that the primary purpose of the preemption right is to allow individuals to maintain their proportionate share of the ownership and control of a corporation.

a) How important do you suppose this consideration is for the average stockholder of a firm whose shares are traded on the New York or American Stock Exchanges?
b) Is the preemption right likely to be of more importance to stockholders of publicly owned or closely held firm? Explain.

c) Is a firm likely to get a wider distribution of shares if it sells new stock through preemptive rights offering to existing stockholders or directly to underwriters?

d) Why would management be interested in getting a wider distribution of its shares?

20-2 Distinguish between operating leases and financial leases. Would you be more likely to find an operating lease employed for a fleet of trucks or for a manufacturing plant?

20-3 Would you be more likely to find that lesses are in high or low income tax brackets as compared with lessors?

20-4 Commercial banks moved heavily into equipment leasing during the early 1970s, acting as lessors. One major reason for this invasion of the leasing industry was to gain the benefits of accelerated depreciation and the investment tax credit on leased equipment. During this same period, commercial banks were investing heavily in municipal securities, and they were also making loans to real estate investment trusts (REITs). In the mid-1970s, these REITs got into such serious difficulty that many banks suffered large losses on their REIT loans. Explain how its investments in municipal bonds and REITs could reduce a bank's willingness to act as a lessor.

20-5 One alleged advantage of leasing voiced in the past is that it kept liabilities off the balance sheet, thus making it possible for a firm to obtain more leverage than it otherwise could have. This raised the question of whether or not both the lease obligation and the asset involved should be capitalized and shown on the balance sheet. Discuss the pros and cons of capitalizing leases and related assets.

21-2 Is preferred stock more like bonds or common stock? Explain.

21-3 What effect does the trend in stock prices (subsequent to issue) have on a firm's ability to raise funds through (a) convertibles and (b) warrants?

21-4 If a firm expects to have additional financial requirements in the future, would you recommend that it use convertibles or bonds with warrants? What factors would influence your decision?

21-5 How does a firm's dividend policy affect each of the following ?Exertion

a) The value of its long-term warrants.
b) The likelihood that its convertible bonds will be converted.
c) The likelihood that its warrants will be exercised.

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