Preferred Shares May Be Issued Instead of Common Shares

question 24

Multiple Choice

Preferred shares may be issued instead of common shares:

• A) To increase financial leverage.
• B) To prevent dilution of voting ownership.
• C) To appeal to investors who believe that common shares are too risky.
• D) To increase the return earned by common shareholders.
• E) All of these answers are correct.

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Definitions:

Dividend Growth Rate

The annualized percentage rate of growth of a company's dividend payments.

Constant Growth DDM

A valuation model for stocks that assumes dividends grow at a constant rate in perpetuity, used to calculate the present value of future dividend payments.

Intrinsic Value

The true, inherent, or fundamental value of an asset, based on both tangible and intangible factors, as opposed to its market price.

Dividends

Payments made by a corporation to its shareholder members, usually derived from the company's profits.