Which of the Following Statements Is CORRECT

question 50

Multiple Choice

Which of the following statements is CORRECT?

• A) preferred stock is normally expected to provide steadier, more reliable income to investors than the same firm's common stock, and, as a result, the expected after-tax yield on the preferred is lower than the after-tax expected return on the common stock.
• B) the preemptive right is a provision in all corporate charters that gives preferred stockholders the right to purchase (on a pro rata basis) new issues of preferred stock.
• C) one of the disadvantages to a corporation of owning preferred stock is that 70% of the dividends received represent taxable income to the corporate recipient, whereas interest income earned on bonds would be tax free.
• D) one of the advantages to financing with preferred stock is that 70% of the dividends paid out are tax deductible to the issuer.
• E) a major disadvantage of financing with preferred stock is that preferred stockholders typically have supernormal voting rights.

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