The cost of preferred stock is ________.
A) lower than the cost of long-term debt.
B) higher than the cost of common stock.
C) higher than the cost of long-term debt and lower than the cost of common stock.
D) lower than the cost of convertible long-term debt and higher than the cost of common stock.

Question

Quizplus · Accepted Answer

Preferred stock is generally considered to have a higher cost than long-term debt since preferred dividends are not tax-deductible. However, it is generally considered to have a lower cost than common stock since preferred stockholders have priority over common stockholders in the payment of dividends and in the event of liquidation. Therefore, the cost of preferred stock falls between the cost of long-term debt and the cost of common stock.

The Cost of Preferred Stock Is ________