The cost of preferred stock to a firm must be adjusted to an after-tax figure because 70% of dividends received by a corporation may be excluded from the receiving corporation's taxable income.

Question

Quizplus · Accepted Answer

The cost of preferred stock is not adjusted for taxes because dividends paid on preferred stock are not tax-deductible for the issuing corporation. The 70% exclusion applies to dividends received by corporations, not paid.

The Cost of Preferred Stock to a Firm Must Be