Western Governors University (WGU) BUS5000 C201 Business Acumen Practice Exam

Question: 1 / 400

What is a key benefit of preferred stock in the event of a firm's dissolution?

High dividends paid regularly

First claim to assets

Preferred stockholders enjoy a key benefit in the event of a firm's dissolution due to their first claim to assets. In a liquidation scenario, preferred shareholders are prioritized over common shareholders when it comes to receiving any remaining assets. This means they have a higher likelihood of recouping their investment before any distributions are made to common stockholders. This protective feature of preferred stock is particularly valuable in situations where the firm's assets may be insufficient to cover all its obligations. By having this preferential treatment, investors in preferred stock can mitigate some of the risk associated with investment in a company, especially during adverse financial conditions or bankruptcy.

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Voting rights in corporate meetings

Guaranteed capital appreciation

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