Which of the following statements is CORRECT?

Question

A. Preferred stock is normally expected to provide steadier, more reliable income to investors than the same firm's common stock, and, as a result, the expected after-tax yield on the preferred is lower than the after-tax expected return on the common stock.
B. The preemptive right is a provision in all corporate charters that gives preferred stockholders the right to purchase (on a pro rata basis) new issues of preferred stock.
C. One of the disadvantages to a corporation of owning preferred stock instead of owning bonds is that 50% of the preferred dividends received represent taxable income to the corporate recipient, whereas none of the interest received from bonds is taxable income to the corporate recipient.
D. One of the advantages for a firm financing with preferred stock is that 50% of the dividends the firm pays may be deducted from its taxable income.
E. A major disadvantage of financing with preferred stock is that preferred stockholders typically have supernormal voting rights.

Answer 1

Answer: A