Question : The main difference between equity shares and preference shares is:
Option 1: Dividend payment priority
Option 2: Voting rights
Option 3: Redemption option
Option 4: Conversion into other securities
Correct Answer: Dividend payment priority
Solution : The correct answer is (a) Dividend payment priority
The main difference between equity shares and preference shares lies in dividend payment priority. Preference shares have a higher priority in receiving dividends compared to equity shares. Preference shareholders are entitled to receive a fixed dividend amount before any dividends are distributed to equity shareholders. This fixed dividend is typically expressed as a percentage of the face value of the preference shares. If the company generates profits and decides to distribute dividends, preference shareholders receive their fixed dividend first, and any remaining profits may be distributed among equity shareholders.
Question : Case Study: PQR Enterprises - Funding Strategies for Diversification
PQR Enterprises is a well-established conglomerate planning to diversify its business operations. The company is evaluating various sources of business finance to support its diversification plans.
Questions : 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 have no voting rights
Option 4: Equity shares have no redemption option
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