For Preferred Shares to Increase the Return Earned by Common

question 74

Multiple Choice

For preferred shares to increase the return earned by common shareholders,the preferred dividend rate as a percentage of the capital raised must be

• A)Equal to the rate of return on common and preferred equity combined
• B)Lower than the rate of return on common and preferred equity combined
• C)Higher than the rate of return on common and preferred equity combined
• D)Both equal to and lower than the rate of return on common and preferred equity combined
• E)None of these

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Definitions:

Contribution Margin

A profitability metric that calculates the amount of revenue remaining after deducting variable costs, used to cover fixed costs and generate profit.

Selling Price

The amount of money for which a product or service is offered for sale to customers.

Contribution Margin Ratio

The percentage of revenue remaining after variable costs have been subtracted, indicating how much revenue is available to cover fixed costs and generate profit.

Contribution Margin

The amount remaining from sales revenue after variable expenses are deducted, indicating how much contributes towards covering fixed costs and generating profit.