Question

Which of the following statements regarding equity instruments in a corporation is true? Group of answer...

Which of the following statements regarding equity instruments in a corporation is true?

Group of answer choices

A particular corporation's equity instruments are ALWAYS riskier than that same corporation's debt instruments.

Shareholders have voting rights to approve all matters of corporate management.

Shareholders have legal rights to protect them in the event that dividends are not paid.

Dividends paid by a corporation are deductible in the determination of taxable income just like interest expense.

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Answer #1

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The answer is: A particular corporation's equity instruments are ALWAYS riskier than that same corporation's debt instruments.


Explanation:
From the Investor's perspective the risk:
Highest: Equity
Medium: preference
Lowest: bonds.

From the investors perspective of Return.
Highest: Equity
Medium: preference
Lowest: bonds.

Explanation:
When a firm faces bankruptcy, it means that its liabilities are more than its assets.

1st Payment goes to bonds.

Equity shareholders sometimes called as residual shareholders are last in line to get any Payment.


Incorrect explanation:
B- shareholders cannot vote in all the matters, sometimes board of directors vote for matters of corporate management.

C- payment of the dividend is not compulsory.

D- dividends are taxable in the hands of shareholders.

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