Question

Which of the following statements is CORRECT?a. A major disadvantage of financing with preferred stock is that preferred stockholders typically have supernormal voting rights.b. One of the disadvantages to a corporation of owning preferred stock is that 70% of the dividends received represent taxable income to the corporate recipient, whereas interest income earned on bonds would be tax free.c. One of the advantages to financing with preferred stock is that 70% of the dividends paid out are tax deductible to the issuer.d. 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.e. 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.

Answer 1

Answer:

e. The preemptive right is a provision in all corporate charters that gives preferred stockholders the right to purchase (on a pro-data basis) new issues of preferred stock.

Explanation:

Preferred shareholders have a right to access to any benefits prior to any other class of security holders.

Basically as the name suggests they are preferred first in all instances. Even in case of new issue of preference capital the advantage to apply for those shares is first given to existing shareholders of preference capital.

This is basically true, as their other features include fixed return in the form of dividends.