Which of the following statements concerning preferred stock is correct?
A) Preferred stock generally is more costly to the firm than common stock.
B) Most issues of preferred stock have a cumulative feature.
C) Preferred dividend payments are tax-deductible.
D) Preferred stock is a riskier form of capital to the firm than bonds.

Question

Quizplus · Accepted Answer

Most issues of preferred stock have a cumulative feature, which means that if the company misses a dividend payment, it must make it up in the future before paying any dividends on common stock. This feature makes preferred stock less risky for investors than common stock, but it also makes it more expensive for the company to issue. Options A, C, and D are incorrect. Preferred stock may be less expensive for the firm than common stock because it does not confer voting rights, and payments on preferred dividends are not tax-deductible. Additionally, preferred stock is generally less risky for the company than bonds because bondholders have a higher claim on a company's assets in the event of bankruptcy.

Which of the Following Statements Concerning Preferred Stock Is Correct