Why Is the Cost of Debt Normally Lower Than the Cost

question 66

Multiple Choice

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

• A) Preferred share dividends are tax deductible.
• 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:

Procurement

The process of obtaining goods or services, often involving tendering or bidding, to fulfill organizational needs.

Functional Strategies

Specific strategies targeting the operations and objectives within a particular business function, such as marketing, finance, or production.

Competitive Strategy

A long-term plan formed by a company to gain an advantageous position over its competitors, typically involving efforts to offer unique value to customers.

Intercompany Scope

The extent of activities, transactions, and engagements that take place between different entities within the same corporate group or parent company.