Final answer:
The statement is true; preferred stock is a financing alternative for firms unfavorable to issue debt or common stock, providing capital without obligatory interest payments and less control loss.
Step-by-step explanation:
The statement that preferred stock can provide a financing alternative for some firms when market conditions are unfavorable for issuing either pure debt or common stock is true. Preferred stock offers a potential solution as it does not obligate the company to make interest payments like bonds or loans would, which is particularly advantageous for companies with inconsistent income. Preferred stock also does not involve giving up as much control as common stock since preferred shareholders typically do not have voting rights.
Companies weigh the pros and cons when choosing between financing options. Borrowing from banks or issuing bonds entails scheduled interest payments regardless of the firm's income. On the other hand, issuing stock leads to selling company ownership and answering to a board of directors and the shareholders. However, the preferred stock serves as a middle ground, potentially providing firms with capital without the burden of fixed payments, aligning well with companies seeking to reinvest earnings for growth without incurring debt obligations.