Question

Consider the following four types of payments that could be made by a normal operating firm: interest, common dividends, income taxes, and preferred dividends. Compared to the other payments mentioned, where would you rank common dividend payments in terms of the order of payment if the firm is liquidating?

Answer 1

Fourth (Last)

Step-by-step explanation:

Common dividend refers to distribution of profits by an entity to it's common stockholders out of the profits earned relating to the current period or from past carried forward profits and reserves. A company may or may not pay such dividend during the year since it depends upon the availability of profits.

Interest on bonds or loans represent an obligation by a firm which has to be discharged irrespective of it's operating profitability. It represents a liability which must be met.

Preferred dividend payable on preferred stock. As the name suggests, the dividend on preferred stock must be paid and preferred over common stock dividend. This dividend is to be paid especially to cumulative preferred stockholders.

Income taxes are to be paid to the government and such taxes are mandatory as per the law and statutes governing a company.

Thus, of all the four payments mentioned, dividend payments would be paid the last upon liquidation since those ain't mandatory and represent no obligation.