A firm will prefer to issue preferred stock rather than debt because the dividend is tax deductible.

Name: A firm will prefer to issue preferred stock rather than debt because the dividend is tax deductible.
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Preferred stock dividends are not tax deductible, but interest payments on debt are. Therefore, a firm may prefer to issue debt rather than preferred stock in order to receive the tax deduction on interest payments.

A Firm Will Prefer to Issue Preferred Stock Rather Than