Why Do Investors in New Ventures Prefer to Take Preferred

question 26

Multiple Choice

Why do investors in new ventures prefer to take preferred stock in a venture instead of common stock?

• A) Because preferred shareholders get paid dividends before common shareholders
• B) Because preferred stock is much cheaper
• C) Because preferred stock is always worth double common stock
• D) Because preferred stock is easier to sell

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Definitions:

Partnerships

A legal form of business operation between two or more individuals who share management and profits.

Depression

A severe and prolonged downturn in economic activity, marked by significant declines in income, employment, and production, often more severe than a recession.

Gross Investment

The total amount spent on purchasing or constructing new capital goods over a specific time period, without accounting for depreciation.

Net Investment

Net investment refers to the total amount spent on purchasing new capital minus the depreciation on existing capital, indicating the growth of a company or economy's productive capacity.