Preferred Stock

Preferred stock is often called a hybrid security because it has some characteristics that are typical of debt and others that are typical of common equity. The following table lists several characteristics of preferred stock. Determine which of these characteristics are consistent with debt securities and which are consistent with common stock Debt Common stock Characteristic Dividend calculated as a percentage of the par value Usually nonparticipating May be called, or redeemed, prior to the end of its normal lifeO Blue Hamster Manufacturing Inc. is required to repurchase and retire 5% of its preferred stock each year. Which type- of provision does Blue Hamster have in its preferred stock agreements? O A participating provision Asinking fund provision O A call provision For the same issuing firm and on the same day of issuance, which security tends to have a greater after-tax cost to the issuer, preferred stock or common stock? Why is this the case? O Common stock, because it represents a perpetuity, whitle preferred stock has a specific maturity date O Preferred stock, because preferred stocok has priority over common stock in the payment of dividends and the distribution of liquidated assets O Preferred stock, because the failure to pay ts dividands will not put the issuer into bankruptcy O Common stock, because its dividends are tax deductible