Preferred stock may be desirable to issue for which of the following reason(s)?
A)If there is no taxable income, preferred stock does not impose a tax penalty.
B)The failure to pay preferred dividends, cumulative or noncumulative, will not cause bankruptcy.
C)Preferred dividends are not tax deductible and therefore will not provide a tax shield but will reduce net income.
D)Both B and C.
E)Both A and B.

Question

Quizplus · Accepted Answer

Preferred stock may be desirable to issue if there is no taxable income as it does not impose a tax penalty. Additionally, the failure to pay preferred dividends, whether cumulative or noncumulative, will not cause bankruptcy. Therefore, issuing preferred stock can be a beneficial option for companies with low or uncertain cash flows as it does not put them at risk of defaulting on their debt obligations.

Preferred Stock May Be Desirable to Issue for Which of the Following