The Fact That a Preference Share Is Redeemable

question 26

Multiple Choice

The fact that a preference share is redeemable:

• A) makes it a financial liability.
• B) makes it an equity instrument.
• C) makes it a compound financial instrument.
• D) does not automatically mean that it is a financial liability. Conditions and rights attaching to the share need to be considered before it can be classified as either a financial liability or equity instrument.

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Definitions:

Margin Of Safety

The difference between actual or projected sales and the break-even point, indicating the degree of risk associated with falling sales.

Contribution Margin Ratio

A financial metric that shows the percentage of sales revenue that exceeds variable costs, essentially calculating the portion of sales available to cover fixed expenses.

Margin Of Safety

The difference between actual or expected sales and the sales level at which the business breaks even, indicating the risk level of not covering fixed costs.

Margin Of Safety Percentage

A financial metric that indicates the degree to which a business's sales can decline before it reaches the break-even point.