Which of the Following Statements Is CORRECT

question 59

Multiple Choice

Which of the following statements is CORRECT?

• A)A major disadvantage of financing with preferred stock is that preferred stockholders typically have supernormal voting rights.
• B)Preferred stock is normally expected to provide steadier, more reliable income to investors than the same firm's common stock, and, as a result, the expected after-tax yield on the preferred is lower than the after-tax expected return on the common stock.
• C)The preemptive right is a provision in all corporate charters that gives preferred stockholders the right to purchase (on a pro rata basis) new issues of preferred stock.
• D)One of the disadvantages to a corporation of owning preferred stock is that 70% of the dividends received represent taxable income to the corporate recipient, whereas interest income earned on bonds would be tax free.
• E)One of the advantages to financing with preferred stock is that 70% of the dividends paid out are tax deductible to the issuer.

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Definitions:

Cash Management

The process of collecting, managing, and investing a company's cash flows in a way that maximizes liquidity and profitability.

Operating Cycle

The duration of time it takes for a company to purchase inventory, sell it, and convert the sale into cash through customer payments.

Bank Overdraft

A facility allowing a bank account holder to withdraw more money than is actually available in their account, typically subject to interest charges.

Current Liability

Financial obligations that are due within one year or within the normal operating cycle of a business.