Corporations prefer bonds to preferred stock for financing their operations because
A. preferred 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
none of these choices provide a clear reason for corporations perferring bonds to stocks for financing their operations.
I chose D none of the above...
Is this correct?
I answered this already. The answer is C
No, the correct answer is C. "The after-tax cost of debt is less than the cost of preferred stock." Corporations generally prefer bonds to preferred stock for financing their operations because the after-tax cost of debt (interest payments on bonds) is typically lower than the cost of preferred stock (dividend payments). This is because bond interest payments are tax-deductible, whereas preferred stock dividends are not. Therefore, corporations can save money on their tax liabilities by issuing bonds rather than preferred stock for financing.
I'm sorry if the choices listed in the question were not clear or didn't provide a direct answer. However, it's important to note that in situations like these, understanding the underlying concepts and reasoning is more important than fitting the options provided.