The Cost of Preferred Stock Is ________

question 107

Multiple Choice

The cost of preferred stock is ________.

• A) lower than the cost of long-term debt.
• B) higher than the cost of common stock.
• C) higher than the cost of long-term debt and lower than the cost of common stock.
• D) lower than the cost of convertible long-term debt and higher than the cost of common stock.

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Definitions:

Sensitivity Analysis

A technique used to determine how different values of an independent variable affect a particular dependent variable under a given set of assumptions.

Fixed Costs

Expenses that do not change with the amount of goods or services produced, such as rent, salaries, or insurance.

Variable Cost

Costs that change in proportion to the goods or services that a business produces.

Net Present Value

A method used in capital budgeting to evaluate the profitability of an investment by summing the present values of all cash inflows and outflows associated with the investment.