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Preferred Stock

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Which of the following statements is CORRECT and why?

a. Preferred stockholders have a priority to income but not to liquidation proceeds over bondholders in the event of bankruptcy.
b. A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation.
c. Corporations cannot buy the preferred stocks of other corporations
d. Preferred dividends are not generally cumulative.
e.The preferred stock of a given firm is less risky to investors than the same firms common stock.

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Solution Summary

The solution describes which of the following preferred stock statements is correct and why or why not they are incorrect.

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a. Preferred stockholders have a priority to income but not to liquidation proceeds over bondholders in the event of bankruptcy.

This is not correct, preferred stock have priority over common stock.

b. A big advantage ...

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