Evaluate the following statement:
The cost of preferred stock is the rate of return shareholders require on the firm's preferred stock.
A) False.
B) True.

Question

Quizplus · Accepted Answer

The cost of preferred stock is the rate of return that the firm must pay to preferred shareholders in order to compensate them for investing in the firm. It is not necessarily the rate of return that shareholders require, but rather the rate of return that the firm must offer to attract and retain investment in its preferred stock.

Evaluate the Following Statement