Preferred stock can provide a financing alternative for some firms when market conditions are such that those firms can issue neither pure debt nor common stock at reasonable cost.

Question

Quizplus · Accepted Answer

Preferred stock can serve as a financing option for companies who cannot issue debt or common stock at a reasonable cost due to market conditions. Preferred stock provides a fixed dividend, similar to debt, but also has equity-like characteristics, such as potential appreciation in value. This can appeal to investors who may be hesitant to invest in pure debt or common stock under certain circumstances.

Preferred Stock Can Provide a Financing Alternative for Some Firms