Which of the Following Statements Is Most CORRECT

question 29

Multiple Choice

Which of the following statements is most CORRECT?

• A)Preferred stock generally has a higher component cost of capital to the firm than does common stock.
• B)By law in most states, all preferred stock must be cumulative, meaning that the compounded total of all unpaid preferred dividends must be paid before any dividends can be paid on the firm's common stock.
• C)From the issuer's point of view, preferred stock is less risky than bonds.
• D)Whereas common stock has an indefinite life, preferred stocks always have a specific maturity date, generally 25 years or less.
• E)Unlike bonds, preferred stock cannot have a convertible feature.

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Definitions:

Dividend Yield

A fiscal ratio indicating the annual dividends a company dispenses in relation to its stock price.

Tax Effects

The impact of tax laws on the financial performance of a company or the net income of an individual, including deductions, exemptions, and liabilities.

Stock Splits

An initiative taken by a company to multiply its current shares into more shares to augment the ease of trading those shares.

Owner's Equity

Owner's equity represents the owner's claim on the assets of a business after all liabilities have been deducted, indicating the net value owned by the proprietor in the company.