Question

2.Which of the following is true?

Select one:

a. Preferred dividends can be paid only if common shareholders vote in favor of doing so at the AGM.

b. If dividends have been in arrears for a lengthy period, preferred shareholders may be able to vote at the AGM in favor of directors who would treat them more kindly.

c. In the event of a liquidation, preferred shareholders are paid whatever dividends are in arrearage and nothing else.

d. Firms are not obligated to pay preferred dividends but if they do not, the dividend is carried forward to be paid later and the firm must pay a nominal interest rate on the amount

Answer 1

a. the decision regarding preference dividend paymnet is taken by board of Directors , so statement a is onot true.

b. If the preference dividends are in arrear for a long time , sometimes prreference shareholders are given voting right and thereofre they can vote for Directors in AGM who would treatv them more kidnly. So statement b. is TRUE.

c. Inthe event of liquidation preferred shareholders have the rights ahead of other shareholders to get the equivalent of par share value and accumulated dividends (depending on the availability of liquidation proceeds).

So statement c is not true.

d.Firms are not obligated to pay preferred dividend , the dividend is carried forward the the preference share is of cumulative type. Even in case of cumulative preference shares no interest is to be paid on the carried forward preference dividend amount. SO statement d is not true.