Which of the following is NOT correct?
A) The after-tax cost of debt for a firm with losses is equal to the interest rate on the debt.
B) Firms always pay dividends on their common stock issues because of the ease with which common shareholders can assume control of the firm.
C) Flotation costs for preferred stock are higher than for debt.
D) Most debt is placed privately and thus there is no flotation cost.

Question

Quizplus · Accepted Answer

Firms do not always pay dividends on their common stock issues, as it is a discretionary decision made by the board of directors. The ease with which common shareholders can assume control of the firm is one of the reasons why firms may choose to pay or not pay dividends, but it is not the only or primary reason.

Which of the Following Is NOT Correct