Question
Which of the following statements is CORRECT? a. The cost of preferred stock is found as the preferred's annual dividend divided by the market price
Which of the following statements is CORRECT?
a. The cost of preferred stock is found as the preferred's annual dividend divided by the market price of the preferred stock. Adjustment is needed for taxes because preferred dividends, like interest on debt, are deductible by the issuing firm.
b. Preferred stock is a hybrid--a sort of cross between a common stock and a bond--in the sense that it pays dividends that normally increase annually like a stock but its payments are contractually guaranteed like interest on a bond.
c. Preferred stock is a hybrid--a sort of cross between a common stock and a bond--in the sense that it pays dividends that normally increase annually like a bond but its payments are contractually guaranteed like interest on a stock.
d. The cost of perpetual preferred stock is found as the preferred's annual dividend divided by the market price of the preferred stock. No adjustment is needed for taxes because preferred dividends, unlike interest on debt, are not deductible by the issuing firm.
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