Which of the Following Statements Concerning Preferred Stock Is Correct

question 65

Multiple Choice

Which of the following statements concerning preferred stock is correct?

• A) Preferred stock generally has a higher component cost to the firm than does common stock.
• B) By law in most states,all preferred stock issues must be cumulative,meaning that the cumulative,compounded total of all unpaid preferred dividends must be paid before dividends can be paid on the firm's common stock.
• C) From the issuer's point of view,preferred stock is less risky than bonds.
• D) Preferred stock,because of the current tax treatment of dividends,is bought mostly by individuals in high tax brackets.
• E) Unlike bonds,preferred stock cannot have a convertible feature.

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Definitions:

U.S.GAAP

United States Generally Accepted Accounting Principles, a standard framework of accounting rules for financial reporting.

Long-lived Asset

An asset with a useful life longer than one year, typically including property, plant, and equipment, used in the operation of a company.

GAAP

The standard set of guidelines for financial accounting known as Generally Accepted Accounting Principles, used primarily within the United States and other jurisdictions.

Replacement Cost

The cost to replace an asset of a company at the present time, according to its current worth.