Which of the Following Statements Best Describes Preferred Stock

question 22

Multiple Choice

Which of the following statements best describes preferred stock?

• A) A major disadvantage of financing with preferred stock is that preferred stockholders typically have super-normal 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.
• 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 would be tax free.

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Definitions:

Organic Product

A compound or material derived from living organisms, or synthetically produced to mimic such substances.

Major Organic

Typically refers to the primary or most significant organic compound or reaction product in a given chemical process.

Fischer Esterification

A chemical reaction between an alcohol and carboxylic acid in the presence of an acid catalyst to produce an ester and water.

Ester Formation

A chemical reaction process where carboxylic acids react with alcohols in the presence of acid catalysts to form an ester and water.