Posted by Jason on .
corporations prefer bonds to preferred stock for financing their operations because?
A. prefered stocks require a dividend
B. bond interest rates change with the economy while stock dividends remain constant
C. the after-tax cost of debt is less than the cost of preferred stock
D. none of the above
preferred stock don't require a dividend, I don't know if stock dividends remain constant, after-tax cost of debit is cheeper than the cost of preferred stock.
I like C as my FINAL ANSWER, but I am not certain
Is this correct?
finance (bonds to stock) -
The answer is C because the bond interest payments can be considered a business expense, leaving more after tax income for stockholders and retained earnings.