Question

Select all that apply

Preferred stock is advantageous in that it:
has priority over common stock when dividends are declared.
has priority over creditors at liquidation.
has priority over common stock at liquidation.
I receives dividends before creditors are to receive any interest payments.

Answer 1

Preferred stock is advantageous in that it:

(1) has priority over common stock when dividends are declared.

(3) has priority over common stock at liquidation.

Step-by-step explanation:

2 and 4 are not correct.

(2) in the case of liquidation, priority of payment is made according to seniority ranking. Creditors is ranked higher than preferred shareholders, so they will recieve payments first.

(4) a company is not obligated to pay dividends to shareholders as with interest payment to creditors. So, the creditors would recieve their interest payments first.