Advise the directors which of the following statements would justify the issue of preference shares over a bond?

A company plans to raise finance for a new project.

It is considering either the issue of a redeemable cumulative preference share or a Eurobond.

Advise the directors which of the following statements would justify the issue of preference shares over a bond?
A . Preference shares are not secured against the assets of the business – however, the Eurobond would be.
B . If profits are poor, dividends do not have to be paid on the preference share – however, interest would need to be paid on the Eurobond.
C . The issue of the preference share would reduce the company’s gearing – however, the Eurobond would increase it.
D . The company can claim tax relief on the dividend paid on the preference share at a higher rate than the interest paid on the Eurobond.

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Answer: B