Which of the following statements concerning preference shares is correct?

Question

Quizplus · Accepted Answer

Most issues of preference shares have a cumulative feature, meaning that if the company fails to pay dividends one year, they must be paid in full before common shareholders can receive any dividends.

A is incorrect because preferred shares often have a lower cost of capital than ordinary shares due to their less risky nature.

C is incorrect because preferred dividend payments are not typically tax-deductible.

D is incorrect because preferred shares are less risky than bonds, as they rank higher in the capital structure and have priority in receiving dividends and proceeds in the event of liquidation.

Which of the Following Statements Concerning Preference Shares Is Correct