Why Is the Cost of Debt Normally Lower Than the Cost

question 54

Multiple Choice

Why is the cost of debt normally lower than the cost of preferred shares?

• A) preferred share dividends are tax deductions
• B) interest is tax deductible
• C) preferred share dividends must be paid before common share dividends
• D) common share dividends are not tax deductible

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Definitions:

Close Substitutes

Products or services that can serve almost the same purpose or fulfill the same need, allowing consumers to switch easily between them.

Market Power

The ability of a company or entity to influence the price and control the market for its product or service.

Monopolistic Competition

A market structure characterized by many firms selling products that are similar but not identical, allowing for some degree of market power and differentiated competition.

Differentiated Products

Goods or services that are distinguished from others by quality, design, branding, or other features, even if they serve the same purpose.