Which of the Following Is Never a Component of a Preferred

question 42

Multiple Choice

Which of the following is never a component of a preferred stock's security structure?

• A) the right to participate in any dividends paid to common stock shareholders
• B) payment of dividends in the form of additional shares of preferred stock
• C) the option for the holder to convert preferred stock into common stock
• D) the option for the venture to call outstanding preferred stock
• E) none of the above; all of these may be included in the structure ofpreferred stock

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Definitions:

Fixed Costs

Regardless of how much is produced or sold, costs for rent, salaries, and insurance remain unchanged.

Variable Costs

Prices that adjust based on the quantity of products made or sold.

Pretax Income

Income earned by an entity before any taxes have been deducted.

Operating Leverage

The degree to which a firm or project can increase operating income by increasing revenue, reflecting the fixed versus variable cost structure.