1. Generally, the goal of negotiation is to develop a short-term partnership with a buyer. True or False.
2. Which one of the following statements is correct?
An increase in the market value of preferred stock will increase a firm's weighted average cost of capital.
The cost of preferred stock is unaffected by the issuer's tax rate.
Preferred stock is generally the cheapest source of capital for a firm.
The cost of preferred stock remains constant from year to year.
Preferred stock is valued using the capital asset pricing model.
3. Tree Farms currently has 48,000 shares of stock outstanding and no debt. The price per share is $22.50. The firm is considering borrowing funds at 8.5 percent interest and using the proceeds to repurchase 1,750 shares of stock. Ignore taxes. How much is the firm borrowing? (Hint: you need to determine the value of the 1,750 shares of stock.)
A. $42,500 B. $39,375 C. $32,750 D. $32,500 E. $40,000