Which of the following is NOT one of the many differences between long-term debt and preferred stock?
A)Long-term debt pays interest which is tax-deductible to the borrower.
B)Preferred stockholders are paid before bondholders if the company bankrupts.
C)Preferred stockholders are considered non-voting owners of the company.
D)The firm is not legally required to pay preferred stock dividends, but must pay interest to bondholders.

Question

Quizplus · Accepted Answer

This statement is incorrect; in reality, bondholders are paid before preferred stockholders if the company goes bankrupt. The correct difference between long-term debt and preferred stock is that preferred stock dividends are not tax-deductible for the company, whereas interest payments on long-term debt are tax-deductible. Additionally, preferred stockholders are non-voting owners of the company, while bondholders have no ownership stake in the company. Finally, while the firm is legally required to pay interest on long-term debt, it is not required to pay dividends on preferred stock unless it has sufficient profits or retained earnings to do so.

Which of the Following Is NOT One of the Many