Question

15. Kelley wants to purchase shares in Classic Kars, Inc., but is torn between buying shares of common stock or shares of preferred stock. What should he consider before determining the type of share he should purchase?

Answer 1

Kelley shall consider the fact that if she wants to have voting rights or not. Preferred stock have a higher claims on cash flows than the common stocks. Hence if kelley wants a lesser risk investment then she may go preferred stock. However if she wants in on the decision making or voting rights she may opt for common shares.

Preffered shares have lesser risk as they have a higher preference on earning distribution, however preferred voters do not have voting rights.