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:

Fixed Costs

Fixed costs refer to expenses that do not change with the level of goods or services produced by the business within a certain range of activity or over a certain period.

Sensitivity Analysis

A technique used to determine how different values of an independent variable will impact a particular dependent variable under a given set of assumptions.

Net Present Value

A method used in capital budgeting to evaluate the profitability of an investment or project, calculated by subtracting the present value of cash outflows from the present value of cash inflows.

Sales Forecast

An estimate of the amount of sales that a company expects to achieve in a certain period.