Corporations prefer bonds over preferred stock for financing their operations because

Question

Quizplus · Accepted Answer

The after-tax cost of debt is lower compared to the cost of preferred stock, which is why corporations prefer bonds. Also, preferred stock requires a dividend, which is not required in the case of bonds. Finally, bond interest rates may change with the economy, but the financial managers can plan and budget for such changes. Therefore, option C is the best choice.

Corporations Prefer Bonds Over Preferred Stock for Financing Their Operations