Preferred Stock May Be Desirable to Issue for Which of the Following

question 1

Multiple Choice

Preferred stock may be desirable to issue for which of the following reason(s) ?

• A) If there is no taxable income, preferred stock does not impose a tax penalty.
• B) The failure to pay preferred dividends, cumulative or noncumulative, will not cause bankruptcy.
• C) Preferred dividends are not tax deductible and therefore will not provide a tax shield but will reduce net income.
• D) Both the failure to pay preferred dividends, cumulative or noncumulative, will not cause bankruptcy; and preferred dividends are not tax deductible and therefore will not provide a tax shield but will reduce net income.
• E) Both if there is no taxable income, preferred stock does not impose a tax penalty; and the failure to pay preferred dividends, cumulative or noncumulative, will not cause bankruptcy.

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Definitions:

Tax Liability

The total amount of tax owed by an individual, corporation, or other entity to a taxing authority, after deductions, credits, and exemptions.

Administrative Source

Information collected and maintained as part of the operations of administrative systems or organizations, often used for research or policy development.

Tax Law

The legal domain encompassing rules, policies, and laws that oversee the tax process, which includes charges on estates, transactions, property, income, licenses, and more.

Revenue Ruling

A Revenue Ruling is an official interpretation by the IRS on how the law is applied to a specific set of facts, providing guidance for taxpayers.