Question : Assertion-Reason Questions: Chapter - Sources of Business Finance
Questions : Equity Shares and Preference Shares
Assertion: Preference shareholders have higher potential for capital appreciation compared to equity shareholders.
Reason: Preference shareholders have voting rights in company decisions.
Option 1: Both assertion and reason are true, and the reason is the correct explanation of the assertion.
Option 2: Both assertion and reason are true, but the reason is not the correct explanation of the assertion.
Option 3: Assertion is true, but the reason is false.
Option 4: Both assertion and reason are false.
Correct Answer: Both assertion and reason are false.
Solution : The correct answer is (d) Both assertion and reason are false.
This assertion is false because preference shareholders have a fixed dividend payment, while equity shareholders have the potential to earn higher dividends if the company's profits increase. Additionally, preference shareholders typically have a lower claim on the company's assets than equity shareholders in the event of liquidation. This means that preference shareholders are less likely to benefit from capital appreciation if the company's share price increases.
This reason is also false. Preference shareholders typically do not have voting rights in company decisions. This is because they are considered to be creditors of the company rather than owners.
Therefore, both the assertion and the reason are false.
Assertion: Equity shares do not carry any fixed dividend liability.
Reason: Equity shareholders receive dividends before preference shareholders.
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