Preferred shares a. Are regarded as equity b. Have a lower claim on cash flow and...
Preferred shares
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a. Are regarded as equity |
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b. Have a lower claim on cash flow and assets than debt |
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c. Have a higher claim on cash flow and assets than common shares |
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d. All of the above |
Homework Answers
Option (d) is correct
Preferred shares are the shares which have the priority over common stock for payment of dividends and capital upon liquidation.If the company goes bankrupt, then preferred shareholders are entitled to be paid from the company assets before any payment is made to the common stockholders. These are regarded as equity, except they carry preferential rights of payment of dividend and return of capital. They have a lower claim on cash flow and assets than debt, who are the real creditors of the company.Bondholders or creditors have higher claim than preferred stockholders.
So the priority for payment in the event of liquidation is, first Creditors than preferred shareholders and than common shareholders.
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