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Question
What are Preference Shares?
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Solution
Preference shares are a type of share that combines the features of both equity shares and debentures bonds.
Some key characteristics of preference shares are:
- Preference shares receive priority dividend payments.
- They are given dividends at a defined rate from profits. Priority in repayment upon liquidation of the company.
- Preference shares might be convertible, non-convertible, redeemable, or non-redeemable.
- Preference shares are regarded as an investment option by cautioned investors due to their minimal risk.
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RELATED QUESTIONS
The term 'redeemable' is used for ______.
Which of the following is also known as hybrid financing?
Which of the following are the features of preference shares?
Preference shares may be ______.
Distinguish between cumulative and non-cumulative preference shares.
The directors of a company have decided to modernise the plants and machinery at an estimated cost of Rs. one crore, but could not decide whether to issue preference shares or debentures for this purpose. As finance manager of the company, advise the directors whether to issue preference shares or debentures in the interest of the company.
Preference shares carry preferential rights for payment of dividend and repayment of capital.
Dividends on cumulative preference shares go on accumulating unless paid.
Discuss the importance of preference shares as sources of long-term finance.
Explain the disadvantages of preference shares.
