Achieving an increased return on common stock by paying dividends on preferred stock at a rate that is less than the rate of return earned with the assets invested from the preferred stock issuance is called:

Question

Quizplus · Accepted Answer

Financial leverage refers to the use of preferred stock or debt to increase the potential return on equity. By paying dividends on preferred stock at a lower rate than the return earned on the assets, the company can enhance the return on common stock.

Achieving an Increased Return on Common Stock by Paying Dividends