Which of the Following Is NOT a Legitimate Reason Why

question 3

Multiple Choice

Which of the following is NOT a legitimate reason why it is generally considered easier to estimate the cost of preferred stock than it is to estimate the cost of common stock?

• A) Preferred stock generally carries with it a fixed dividend payment.
• B) Preferred stock is often rated for default risk.
• C) The cost of preferred stock can be calculated as a perpetuity based on the fixed dividend payment and the present stock price.
• D) Calculation of the cost of preferred stock does not require any information about future preferred dividends.
• E) The cost of preferred stock is simply equal to its dividend yield.