The Preferred Stock of a Firm Sometimes Includes a Cumulative

question 48

Multiple Choice

The preferred stock of a firm sometimes includes a cumulative feature. This means that:

• A) holders of preferred stock have a claim on assets that comes before common stockholders if the firm goes out of business.
• B) if the firm skips a preferred dividend in one period, the amount it must pay the next period is equal to the dividend for that period plus the amount of the dividend it skipped in the previous period.
• C) the firm must pay any back taxes, legal expenses, wages owed to workers, and debts owed to creditors before the owners of the firm get anything.
• D) if the firm issues new stock, existing stockholders can purchase new shares in proportion to their existing holdings before the stock is offered to the other investors.

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