The Principal Disadvantage of Preferred Stock Financing Is ______

question 121

Multiple Choice

The principal disadvantage of preferred stock financing is ______.

• A) its high after-tax cost as compared with long-term debt
• B) the decrease in the firm's degree of financial leverage
• C) the required payment of dividends
• D) the reduction in control

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Definitions:

Relevant Range

The range of activity within which the assumptions about variable and fixed cost behaviors hold true.

Total Fixed Costs

Financial obligations that do not fluctuate with the amount of goods made or sold, for instance, rent, salaries, and insurance coverage.

Unit Fixed Costs

Unit Fixed Costs are the costs that do not change with the volume of production and are allocated per unit based on the total production quantity.

Total Variable Cost

Charges that fluctuate in direct relation to the volume of production or output.