Question : Case Study: ABC Corporation - Financing Growth Strategies
ABC Corporation, a leading manufacturing company, is looking to finance its growth strategies. The company is exploring various sources of business finance to achieve its expansion goals.
Questions : Equity Shares and Preference Shares
If ABC Corporation issues non-cumulative preference shares, what does this mean?
Option 1: Dividends on these shares must be paid before equity shareholders
Option 2: The company cannot issue any more preference shares
Option 3: Dividends on these shares can be postponed
Option 4: Shareholders have no voting rights
Correct Answer: Dividends on these shares can be postponed
Solution : The correct answer is (c) Dividends on these shares can be postponed
Non-cumulative preference shares do not carry the right to accumulate unpaid dividends. If the company is unable to pay dividends in a particular period, the shareholders of non-cumulative preference shares do not have the right to claim those unpaid dividends in the future. This is in contrast to cumulative preference shares, where any unpaid dividends accumulate and must be paid in future periods before any dividends are distributed to equity shareholders.
Which feature makes equity shares different from preference shares?
Option 1: Fixed dividend payments
Option 2: Ownership rights in decision-making
Option 3: Redemption option
Option 4: No voting rights
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