The Cost of Preferred Stock Is Dependent Upon

question 313

Multiple Choice

The cost of preferred stock is dependent upon:

• A) The dividend amount and the market risk premium.
• B) The dividend amount and the growth rate of the firm.
• C) The dividend amount and the market price of the stock.
• D) The market risk premium and the firm's level of risk relative to the market.
• E) The market price of the stock and the risk level of the firm relative to the market.

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Definitions:

Net Advantage

The total benefits received minus the costs incurred from an investment or business decision.

Resale Value

The estimated market value of an asset at the future date when it is likely to be sold, often used in reference to vehicles and property.

Present Value

The current value of a future sum of money or stream of cash flows, given a specified rate of return.

Tax Shields

The reduction in income taxes that results from taking allowable deductions such as depreciation, mortgage interest, and other allowances.