Explain, in your own words (don’t copy/paste or paraphrase), the difference between participating and non-participating preferred shares. Discuss which scenario is preferred by common shareholders and which is better for preferred shareholders (also explain WHY). In your short essay response, address this example directly:

DGA Corp.

30,000 common shares outstanding, issued at $10 per share. Current market value of $16 per share. 20,000 participating preferred shares issued at $25 per share (dividend preference of $2 per share). Current earnings are $150,000.

Vs.

EFB Corp.

30,000 common shares outstanding, issued at $10 per share. Current market value of $16 per share. 20,000 non-participating preferred shares issued at $25 per share (dividend preference of $2 per share). Current earnings are $150,000.

Answer rating: 100% (QA)

Preferred shares gets preferred treatment at the time of liquidation Also prefereence shares gets a fixed amount of dividend ahead of common sharehold... View the full answer