Why Is the Cost of Debt Normally Lower Than the Cost

question 41

Multiple Choice

Why is the cost of debt normally lower than the cost of preferred stock?

• A) Preferred stock dividends are tax deductions.
• B) Interest on debt is tax deductible.
• C) Preferred stock dividends must be paid before common stock dividends.
• D) Common stock dividends are not tax-deductible.

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Definitions:

Community Property

A legal concept in certain jurisdictions that property acquired during marriage is owned jointly by both spouses.

Tenancy In Common

A form of real estate ownership where two or more individuals possess property simultaneously, with each holding an undivided interest in the property.

Joint Tenancy

A legal arrangement where two or more individuals hold property jointly, with equal rights and privileges.

Tenancy By The Entirety

A form of joint property ownership available only to married couples, where each owns the entire property, and upon one's death, the survivor automatically owns the property outright.