17.Preference shares typically offer: A. Voting rights to shareholders B. Fixed dividend payments C. Convertibility into equity shares D. No claim on company profits
Question
17.Preference shares typically offer: A. Voting rights to shareholders B. Fixed dividend payments C. Convertibility into equity shares D. No claim on company profits
Solution
Preference shares typically offer B. Fixed dividend payments.
Here's why:
A. Voting rights to shareholders - This is usually not the case. Preference shareholders typically do not have voting rights unless the company fails to pay the promised dividends.
B. Fixed dividend payments - This is correct. Preference shares typically come with an agreed-upon dividend that is paid out before dividends to common shareholders are considered.
C. Convertibility into equity shares - This depends on the type of preference shares. Convertible preference shares do exist, but not all preference shares have this feature.
D. No claim on company profits - This is incorrect. Preference shareholders have a claim on profits, but it is limited to the agreed-upon dividends. If the company has extra profits, these typically go to the common shareholders.
Similar Questions
MNS Ltd issues redeemable preference shares with cumulative dividend ratio at 7%. MNS Ltd has to pay dividend on the shares every year and has the contractual obligation to redeem the shares for cash at the expiration date.How MNS Ltd should recognise the preference shares?Group of answer choicesRecognise the preference shares as financial assetsRecognise the preference shares as financial liabilitiesRecognise part of the preference shares as financial liabilities and part of them as equity instrumentsRecognise the preference shares as equity instruments
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Company X issues preference shares to Company Y, the terms of which entitle Company Y to redeem the preference shares for cash if Company X's revenues fall below a specified level. From Company X's perspective, the preference shares are:Group of answer choicesa compound financial instrument.a financial asset.an equity instrument.a financial liability.
Ownership securities are represented by which of the following types of securities?Options :Preference SharesEquity SharesBondsNone of the above
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