The cost of preferred stock is greater than the cost of debt primarily as the result of the difference in tax treatment of dividends and interest.

Question

Quizplus · Accepted Answer

The cost of preferred stock is typically higher than the cost of debt due to several reasons such as dividends paid on preferred stock not being tax deductible, the greater risk associated with preferred stock, and the lack of a maturity date on preferred stock. However, the difference in tax treatment of dividends and interest is one of the primary reasons for the higher cost of preferred stock.

The Cost of Preferred Stock Is Greater Than the Cost