Reference no: EM1363856

Preferred stock is used much less than long-term debt in the capital structure of most industrial and merchandising companies principally because:

the preferred stock dividend requirement is a fixed claim against income, but interest on long-term debt is not a fixed amount.

preferred stock has a fixed liquidation or redemption value, but long-term debt does not have a fixed maturity value.

preferred stock may be convertible to common stock, but long-term debt cannot be convertible.

for income tax purposes, dividends paid on preferred stock are not deductible, but interest on long-term debt is deductible.