Question

SunTech Corp. is a newly established US company. The current net income of the company is $23 million US dollars. The company has issued both preferred and common shares. No dividends will be paid on any of the shares over the next three years.

Answer 1

SunTech Corp., a new company with a $23 million net income, is not paying dividends on its shares for reinvestment purposes, affecting both preferred and common shareholders.

Step-by-step explanation:

The question revolves around SunTech Corp., a newly established US company with a current net income of $23 million. Information is provided regarding its share structure and the dividend policy, noting that no dividends will be paid on either preferred or common shares for the next three years. Given the financial nature of the question, discussing topics such as share types, income, and dividend policies, it falls under the category of business.

SunTech Corp. is navigating typical financial decisions for a new company. Their current net income suggests a strong financial start. By not paying dividends, they are likely focusing on reinvestment to foster growth, which can benefit shareholders in the long run if the company's value appreciates. Equity investors should understand that the lack of short-term dividend payments may be offset by potential long-term gains in share value, resulting from reinvestment in the business's operations or expansion. This strategic move is significant for those holding either preferred or common shares.