Which Three of the Following Are Advantages to the Firm

question 22

Multiple Choice

Which three of the following are advantages to the firm of preference share capital?

• A) Preference shares are an alternative shock absorber to ordinary shares because of the possibility of avoiding the annual cash outflow due on dividends.
• B) Preference shares are an additional source of capital but do not dilute the influence of the ordinary shareholders on the firm's direction.
• C) Preference dividends can be omitted for one or more years.
• D) Preference shareholders receive all the extraordinary profits when the firm is doing well.

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Definitions:

Balance Sheets

Financial statements that summarize a company's assets, liabilities, and shareholders' equity at a specific point in time.

Asset

An item of value owned by an individual or corporation, expected to provide future benefit or revenue.

Reserve Requirement

A regulation set by central banks requiring commercial banks to hold a certain amount of their deposits as reserves, either as cash in their vaults or as deposits with the central bank, to ensure liquidity.

Money Multiplier

The ratio of the increase in total money supply generated from an initial deposit in a banking system.