Question : Case Study: LMN Ventures - Financing Innovation and Research
LMN Ventures is a research-driven technology company aiming to innovate and develop cutting-edge products. The company is exploring various sources of business finance to support its research and development endeavors.
Question:Equity Shares and Preference Shares
How do preference shares differ from equity shares in terms of dividend payments?
Option 1: Preference shares pay higher dividends
Option 2: Equity shares pay fixed dividends
Option 3: Preference shares pay no dividends
Option 4: Equity shares have fixed interest rates
Correct Answer:
Preference shares pay higher dividends
Solution : The correct answer is (a) Preference shares pay higher dividends
Preference shares typically pay higher dividends compared to equity shares. These dividends are predetermined and fixed, providing preference shareholders with a consistent income stream. On the other hand, equity shares do not have a fixed dividend rate; the payment and amount of dividends for equity shareholders are at the discretion of the company's management and are contingent on the company's profitability and dividend policy.
