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:

Cost-benefit Analysis

An economic evaluation method that compares the costs and benefits of an action or decision to determine its feasibility or worth.

Ethical Theory

A systematic exposition of principles, concepts, and theories that guide moral behavior and distinguish right from wrong.

Universal Laws

Fundamental principles or laws that are believed to be universally applicable, regardless of systems or beliefs.

Direct Pronouncements

Clear and explicit statements or announcements made by an authoritative source, often used in the context of official declarations or policy communications.