Preferred Stock May Be Good for a Company Because It

question 77

Multiple Choice

Preferred stock may be good for a company because it:

• A) expands the capital base of the firm without diluting the common stock ownership.
• B) does not require interest payment in times of financial trouble,but are tax-deductible when dividends are paid.
• C) is not as costly as common stock or bonds.
• D) gives up no control even when dividend payments are missed.

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Definitions:

Cash Payment

The act of disbursing money to settle a transaction, bill, or debt.

Principal Balance

The original sum of money borrowed in a loan or the remaining balance of a loan excluding interest.

Times Interest Earned

A ratio that measures a company's ability to meet its debt obligations based on its earnings before interest and taxes.

Net Income

The amount of money a company ultimately earns once it subtracts expenses and taxes from its gross revenue.