Finance Ch.8

cumulative dividend

A feature of preferred stock entitling the stockholder to receive current and unpaid prior-year dividends before common stockholders receive any dividends.

multiple series

If a company desires, it can issue more than one series of preferred stock, and each series can have different characteristics (such as different protective provisions and convertibility rights).

claim on income

Preferred stock also has priority over common stock with regard to dividend payments.... preferred stocks are safer than common stock but riskier than bonds

Hybrid Security

Preferred stock is often referred to as a ______ because it has many characteristics of both common stock and bonds

Protective Provisions

Provisions for preferred stock that protect the investor's interest. The provisions generally allow for voting in the event of nonpayment of dividends, or they restrict the payment of common stock dividends if sinking-fund payments are not met or if the firm is in financial difficulty.... reduce the risk and expected return

retirement provisions

call provisions entitles corporation to repurchase preferred stock at stated price over given time, sinking fund provision required firm to set aside money for retirement of preferred stock

common stock

certificate that indicates ownership in company, rights in prorating to share, true owners of the firm

residual income

common shareholders have the right to ____ after bondholders and preferred stockholders have been paid. can be paid in dividends or retained earnings

residual claim

common stock has a ____ on assets in the case of liquidation. debt holders and preferred stockholders claims are met first

increase

dividends tend to ___ with the growth in corporate earnings.

fixed dividends

like bonds, preferred stocks have.....

no fixed maturity date, no bankruptcy, no tax deduction for dividends

like common stocks, preferred stock have.....

convertibility

preferred stock can be converted into shares of common stock (1/3 of today's issued)

claim on assets

preferred stock has priority over common stock w/ regard to claim on assets in bankruptcy.... before common stock but after bonds

limited liability

the liability of common shareholders is limited to the amount of their investment, helps firm in raising funds