Question

the cost of raising capital with debt is typically less costly for a firm than raising capital with preferred stock. which one of the following is one of the reasons for this? group of answer choices interest is a tax-deductible cost, preferred dividends are not. none of these preferred stocks are more senior than bonds. the debt is less tax-deductible. preferred stocka are more tax deductible. bonds generally have a longer maturity than preferred stocks. the interest from bonds is compounded more frequently than the dividends from preferred stocks.

Answer 1

The cost of raising capital with debt is typically less costly than raising capital with preferred stock because interest is a tax-deductible cost, whereas preferred dividends are not tax-deductible.

Step-by-step explanation:

The reason that the cost of raising capital with debt is typically less costly for a firm than raising capital with preferred stock is because interest is a tax-deductible cost, whereas preferred dividends are not tax-deductible.

When a firm borrows money through debt, it can deduct the interest payments from its taxable income, resulting in a reduced tax liability. However, preferred stock dividends are not tax-deductible expenses for the firm.

This tax advantage makes debt financing more attractive to firms compared to raising capital through preferred stock.