Question

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?

Answer 1

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.