If a corporation pays no taxes because it is losing money, a preferred stock issuance becomes more attractive relative to a debt issuance.

Question

Quizplus · Accepted Answer

If a corporation is losing money and paying no taxes, it means that it doesn't have any taxable income to benefit from the tax-deductible interest payments on debt. Therefore, a preferred stock issuance, which pays dividends that are not tax-deductible but are still not subject to taxes at the corporate level, may be more attractive to investors than a debt issuance.

If a Corporation Pays No Taxes Because It Is Losing