1. Which of the following statements is NOT correct?

A. Preferred stockholders have priority over common stockholders with respect to dividends, because dividends must be paid on preferred stock before they can be paid on common stock.

B. Unlike bonds, the cost of preferred stock to the issuing firm is the same on a before-tax and after-tax basis. This is because dividends on preferred stock are not tax deductible, whereas interest on bonds is deductible.

C. One advantage of convertibles over warrants is that the issuer receives additional cash money when convertibles are converted.

D. The owner of a convertible bond owns, in effect, both a bond and a call option.

E. Warrants are long-term call options that have value because holders can buy the firm's common stock at the exercise price regardless of how high the stock's price has risen.