Although _____________ is legally a form of equity, it is often referred to as a

Question

Although _____________ is legally a form of equity, it is often referred to as a _____________ security because it has characteristics of both long-term debt and equity.

Word bank: Capital, Capital gain, Capital rationing, Cash outflows, Cheapest, Cost of capital, Debt, Equity, Externalities, Financial- leverage, Fluctuating, Higher, Hybrid, Incremental CFs, Independent, Interest expense, Investor's, IRR, Most expensive, Mutually exclusive, Negative, New stock, NPV rule, Open- market, Operating leverage, Opportunity, Overvalued, Positive, Preferred stock, Shareholder's, Sunk, WACC

Explanation / Answer

Ans :- Although Preferred stock is legally a form of equity, it is often referred to as a Hybrid security because it has characteristics of both long-term debt and equity.

Explanation : Preferred stock is a security that shares some characteristics with debt and some with equity. Like debt, preferred stock has a fixed dollar dividend; if the firm does not have the cash to pay the dividend, it is accumulated and paid in a period when there are sufficient earnings.

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