The Cumulative Feature of Preference Shares

question 38

Multiple Choice

The cumulative feature of preference shares

• A)limits the amount of cumulative dividends to the par value of the preference shares.
• B)requires that preference dividends not paid in any year must be made up in a later year before dividends are distributed to ordinary shareholders.
• C)means that the shareholder can accumulate preference shares until it is equal to the par value of ordinary shares at which time it can be converted into ordinary shares.
• D)enables a preference shareholder to accumulate dividends until they equal the par value of the shares and receive the shares in place of the cash dividends.

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Definitions:

Opportunity Costs

The value of the best alternative that is foregone when a different option is chosen.

Special Order

A one-time order that is not considered part of the company’s normal ongoing business.

Capacity

The maximum output that a business can produce in a given period with available resources.

Production Constraint

Any factor that limits the volume or type of production a company can achieve, such as equipment capacity or availability of materials.