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A financial manager usually prefers to issue preferred stock rather than debt because

A financial manager usually prefers to issue preferred stock rather than debt because: A. Payments to preferred stockholders are not considered fixed payments. B. The cost of fixed debt is less expensive since it is tax deductible even if a sinking fund is required to retire the debt. C. The preferred dividend is often cumulative, whereas interest payments are not. D. In a legal sense, preferred stock is equity; therefore, dividend payments are not legal obligations.

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Question added by Anayatullah Tahir , Finance Manager , Etqan Projects
Date Posted: 2014/05/06
Muhammad Zubair
by Muhammad Zubair , CFO / Chief Accountant , RH Group

C. The preferred dividend is often cumulative, whereas interest payments are not.

Mubashir Shahzad
by Mubashir Shahzad , Oracle Functional Consultant/ERP Business Analyst , Jaffer Business System

C

Tanveer Qureshi
by Tanveer Qureshi , Qureshi Associates , Qureshi Associates

C is appropriate option.

Basel Al Bader, CMA, CFM
by Basel Al Bader, CMA, CFM , Internal Audit Senior Manager , Kuwait Telecommunication Company- VIVA

I'll go with D

Muhammed Irfan Makkunnath Akkalil
by Muhammed Irfan Makkunnath Akkalil , Programme Executive , ASAP

If the firm is in starting situation or expanding its business and it can not pay interest in recent years, the financial manager can go for issuing preference shares which is often cumulative.

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