Preferred Stock Is Used Much Less Than Long-Term Debt in the Capital

question 19

Multiple Choice

Preferred stock is used much less than long-term debt in the capital structure of most industrial and merchandising companies principally because:

• A)the preferred stock dividend requirement is a fixed claim against income, but interest on long-term debt is not a fixed amount.
• B)preferred stock has a fixed liquidation or redemption value, but long-term debt does not have a fixed maturity value.
• C)preferred stock may be convertible to common stock, but long-term debt cannot be convertible.
• D)for income tax purposes, dividends paid on preferred stock are not deductible, but interest on long-term debt is deductible.

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