Preferred stock is often called a hybrid security because it has some characteristics that are typical of debt and others that are typical of equity. The following table lists several characteristics of preferred stock. Determine which of these characteristics are consistent with debt securities and which are consistent with common stock. Debt Common Stock Characteristic Dividend calculated as a percentage of the par value Usually nonparticipating May be called, or redeemed, prior to the end of its normal life Purple Pigeon Bird Seed Company is required to repurchase and retire 5% of its preferred stock each year. Which type of provision does Purple Pigeon have in its preferred stock agreements? A sinking fund provision A call provision O A participating provision For the same issuing firm and on the same day of issuance, which security tends to have a greater after-tax cost to the issuer, preferred stock or common stock? Why is this the case? Common stock, because its dividends are tax deductible Preferred stock, because preferred stock has priority over common stock in the payment of dividends and the distribution of liquidated assets Common stock, because it represents a perpetuity, while preferred stock has a specific maturity date Preferred stock, because the failure to pay its dividends will not put the issuer into bankruptcy