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Why is a preference share called hybrid security

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Q1. American? Exploration, Inc., a natural gas producer, is trying to decide whether to revise its target capital structure. Currently, it targets a 50?-50 mix of debt and equity, but it is considering a target capital structure with 70?% debt. American Exploration currently has a 6?% after-tax cost of debt and a 12?% cost of common stock. The company does not have any preferred stock outstanding.

Q2. Why is a preference share called hybrid security? Do you agree that it combines the worst features of ordinary shares and bonds?

Q3. What is financial distress? How does it affect the value of the firm?

Q4. Explain the nature of the factors which influence the dividend policy of a firm.

Reference no: EM133060672

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