DQW4 2-3 - preferred stockholder has a Liquidation...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Why is preferred stock referred to as preferred? What are some of the features that are added to preferred stock to make it more attractive to investors? Would you select preferred stock or common stock as an investment? Explain why. Preferred stock has contractual provisions that give it preference or priority over common stock in certain areas. Some of the features that are added to preferred stock to make it more attractive to investors is that of when the corporation decides to give out dividends then the preferred stockholders are the first to get a dividend, and the other feature to make a preferred stock more attractive is that of Liquidation Preference. This means that if the company doesn’t pay or goes into bankruptcy then the preferred stockholder has the right to certain assets of the company. I would choose preferred stock over common stock as an investment. The reason is that preferred stockholders are the first stockholders to get paid. Also if the corporation can’t pay then the
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: preferred stockholder has a Liquidation Preference of whatever the corporation has an asset to. What are the different types of dividends that corporations may issue? When should a corporation pay dividends? Would you prefer a stock dividend or a cash dividend? Explain why. There are four different types of dividends that a corporation may issue. They are cash, property, script (promissory note to pay cash), or stock. A corporation should pay a dividend when they have the money in the corporations cash balance. I think that I would prefer a cash dividend rather than a stock dividend. The reason for this is that if you were to get paid a stock dividend it’s like the company is saying here is more stock for you that we will never pay to you in the long run. For example, it’s like asking for two pieces of pie and having your host take one piece of pie and cut it into two smaller pieces. You are not better off, but you got your two pieces of pie....
View Full Document

This note was uploaded on 03/28/2011 for the course ACCT 349 taught by Professor Goyal during the Spring '09 term at University of Phoenix.

Ask a homework question - tutors are online