Question

What is the most likely explanation for the use of preferred stock from a corporate viewpoint?

A substantial initial response comprising a minimum of 100 words is required.

Answer 1

Use of preferred stock can be as follows -

A. it will help the company in order to generate hybrid kind of financing without creating much impact on the overall equity capital by dilution of equity capital and it will also be not creating any financial distress cost for itself.

B.preferred stocks costs are also lower than the cost of equity so it will offering a flexibility on the part of the organisation.

C.these share holders will not be also voting into any of the annual General meeting so they will not be influencing the decision making of the company.

D.the dividend payments related to the preference share is cumulative in nature so there is no obligation to pay dividend if the company is making a loss.