Question

with regard to preferred stock, a. its issuance provides no flexibility to the issuing company because its terms always require mandatory dividend payments. b. no dividends are expected by the stockholders. c. its stockholders may have the right to participate, along with common stockholders, if an extra dividend is declared. d. there is a legal requirement for a corporation to declare a dividend on preferred stock.

Answer 1

Preferred stockholders may have the right to participate in an extra dividend alongside common stockholders.

• In the case of preferred stock, option c is correct.
• When an extra dividend is declared, preferred stockholders may have the right to participate alongside common stockholders.
• However, option a is incorrect because the issuance of preferred stock can provide flexibility to the issuing company, as the terms can be structured to meet the company's needs.
• Option b is also incorrect because preferred stockholders typically expect to receive dividends.
• Lastly, option d is incorrect because there is no legal requirement for a corporation to declare a dividend on preferred stock.