In the event of a firm's liquidation,the order in which claimholders are paid off is
A) debtholders,common stockholders,preferred stockholders
B) common stockholders,preferred stockholders,debtholders
C) debtholders,preferred stockholders,common stockholders
D) common stockholders,debtholders,preferred stockholders

Question

Quizplus · Accepted Answer

Debtholders have the highest priority in getting paid off in the event of a firm's liquidation as they have a legal claim over the assets of the firm. Preferred stockholders have the next priority in getting paid off as they have a preference over common stockholders in the event of liquidation. Common stockholders have the lowest priority as they are the residual claimants and are paid off last, if at all. Hence, the correct order of claimholder payment is debtholders, preferred stockholders, and common stockholders. Therefore, choice C is the best option.

In the Event of a Firm's Liquidation,the Order in Which