Q18: Only some publicly-traded companies have ever issued preferred stocks. Discuss the advantages/disadvantages of preferred stock.
Q18: Only some publicly-traded companies have ever issued preferred stocks. Discuss the advantages/disadvantages of preferred stock.
Homework Answers
Advantages of preferred dividend are
1) The ownership percentage is not diluted in case of issue of
preference shares.
2) It provides higher flexibility as compared to debt issue, since
annual payments can be missed in certain years.
3)They have lower costs as compared to equity, hence it is lower
cost of funding.
Disadvantages of Preferred Dividends are:
1. Higher cost of funding as compared to debt funding.
2. Missing a dividend payment can tarnish the image of the
company.
3. In case of liquidation preferred share holders are given higher
priority as compared to equity holders.
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Q18: Only some publicly-traded companies have ever issued
preferred stocks. Discuss the advantages/disadvantages of preferred
stock.
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