Final answer:
Preferred stock provides priority access to dividends, generally lacks voting rights, and is a method of raising capital without altering control rights of common shareholders. It offers financial benefits to companies looking to expand without incurring debt.
Step-by-step explanation:
The student's question pertains to the characteristics of preferred stock. Preferred stock is a type of equity that has certain advantages and features distinguishing it from common stock. To address the question parts in turn:
- Preferred stock has priority to dividends, meaning that holders of preferred stock are paid dividends before common stockholders.
- Preferred stock generally does not have voting rights. This means that preferred shareholders typically do not have a say in the company's management decisions at shareholder meetings.
- Issuing preferred stock is useful for raising capital without reducing common stockholder's control over the company. This allows the company to access funds for expansion or other purposes while keeping the voting power concentrated among common shareholders.
When a firm issues stock, it's seeking financial capital to fund expansion without the necessity of repaying the funds as one would with a loan. Dividends are payments made from the firm's profits to the shareholders. However, preferred stockholders get precedence over common stockholders for dividend payments, and the presence of preferred shares doesn't alter the control dynamics within the company's existing common shareholder structure.