The Reason That We Do Not Use an After-Tax Cost

Multiple Choice

The reason that we do not use an after-tax cost of preferred stock is:

A) because preferred dividends are paid out of before-tax income.
B) because most of the investors in preferred stock do not pay tax on the dividends.
C) because we can only estimate the marginal tax rate of the preferred stockholders.
D) None of these answers is correct.