Preferred shares are often issued instead of debt
A) to avoid paying dividends to the common shareholders.
B) because a corporation's debt-to-equity ratio has become too high.
C) to increase the market value of the shares.
D) to decrease the market value of the shares.

Question

Quizplus · Accepted Answer

Preferred shares are often issued instead of debt when a corporation's debt-to-equity ratio has become too high. This is because issuing new debt may worsen the ratio, ultimately affecting the company's credit rating and increasing the cost of borrowing. Preferred shares are a way for the company to raise funds without taking on additional debt.

Preferred Shares Are Often Issued Instead of Debt