Explain the difference between common and preferred shares. Which type of share is less risky to an investor? Explain.
Answer to relevant QuestionsWhat does it mean when an entity uses leverage to finance itself? What are the advantages and disadvantages of using leverage?What is a not-for-profit organization? If their objective is not to make a profit, what is it? Why is a traditional income statement not appropriate for a not-for-profit organization? What is retained earnings? What transactions and economic events have an effect on retained earnings? Why is retained earnings considered an indirect investment in an entity? How are preferred shares "preferred"? Are dividends on preferred shares guaranteed? If the preferred shares have a cumulative feature, are the dividends guaranteed? Explain.Why do employee stock options impose a cost on shareholders?
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