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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Definitions:

Personal Bankruptcy

A legal process where individuals unable to meet their debt obligations can have their debts discharged or reorganized under the protection of bankruptcy laws.

Practical Consequences

The actual effects or outcomes that result from an action or decision, beyond theoretical impacts.

Bankruptcy Process

A legal procedure for dealing with debt problems of individuals and businesses; specifically, a formal declaration that an entity cannot pay its debts, leading to a reorganization or liquidation of assets.

Secured Creditor

A lender protected by an asset or collateral, ensuring priority payment if the borrower defaults.