The Cost of Issuing Preferred Stock by a Corporation Must

question 24

True/False

The cost of issuing preferred stock by a corporation must be adjusted to an after-tax figure because of the 70 percent dividend exclusion provision for corporations holding other corporations' preferred stock.

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Definitions:

Corporation

A legal entity that is separate and distinct from its owners, which can enter into contracts, own assets, sue and be sued.

Piercing the Corporate Veil

A legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders or directors.

Creditors

Individuals or institutions that extend credit or lend money to others with the expectation of being repaid, usually with interest.