Preferred stock increases common stockholders' return
A) more than an equal dollar amount of debt
B) less than an equal dollar amount of debt
C) more than an equal dollar amount of retained earnings
D) less than an equal dollar amount of retained earnings

Question

Preferred stock increases common stockholders' return​
A) ​more than an equal dollar amount of debt
B) less than an equal dollar amount of debt​
C) more than an equal dollar amount of retained earnings​
D) less than an equal dollar amount of retained earnings​

Quizplus · Accepted Answer

Preferred stocks are considered less risky than common stocks but more risky than bonds. Therefore, the return on preferred stock is likely to be lower than the return on an equal dollar amount of debt. Common stockholders will benefit from this because the increase in preferred stock return will be less than the increase in debt return, leaving more earnings to be distributed among common stockholders.

Preferred Stock Increases Common Stockholders' Return​

Preferred Stock Increases Common Stockholders' Return