Firms May Prefer to Issue Cumulative Preferred Stock Rather Than

question 53

Multiple Choice

Firms may prefer to issue cumulative preferred stock rather than debt for which reason?

• A)If there is no current taxable income,preferred stock dividends are automatically voided.
• B)Preferred stock has no voting rights but debt does.
• C)Preferred dividends provide a tax shield but debt does not.
• D)Corporate investors can receive a tax break on dividends.
• E)Dividend payments are tax deductible,interest on debt is not.

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Definitions:

Marginal Cost

The rise in expense associated with manufacturing an extra unit of a product or service.

Shut Down

A short-term decision by a company to cease operations temporarily due to unfavorable market conditions or to minimize losses when variable costs exceed total revenues.

Maximizes Profit

The strategy or process implemented to increase the difference between total revenue and total costs to the highest possible amount.

Marginal Revenue

Income gained by selling an additional unit of a product or service.