Which Statement Relating to Ordinary Shares Is Not True

question 56

Multiple Choice

Which statement relating to ordinary shares is not true?

• A) Ordinary shares have a fixed rate of dividend attached.
• B) Ordinary shares receive their dividends after the preference shares.
• C) Holders of ordinary shares have the right to sell their shares.
• D) The market price of ordinary shares tends to fluctuate with expectations of future profits.

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Definitions:

Margin of Safety

The difference between actual or expected sales and the break-even point, reflecting the cushion against a loss.

Break Even

Break even refers to the point at which total costs and total revenue are equal, resulting in no net loss or gain and the initial investment is recovered.

Fixed Costs

Expenses that do not change with the volume of production or sales, such as rent, salaries, and insurance, remaining constant regardless of business activity levels.

Contribution Margin Ratio

A financial metric that shows the percentage of revenue that exceeds variable costs, indicating how much revenue contributes to fixed costs and profits.