Please answer and discuss the questions below in detail or add your own similar
ID: 2512313 • Letter: P
Question
Please answer and discuss the questions below in detail or add your own similar topic. A. Discuss the accounting nuts and bolts with both a cash dividend or a stock dividend, B. Preferred stock - what are the advantages of issuing preferred stock that is cumulative, noncumulative, participating, and convertible? What would be your preference if you invested in preferred stock? Why? C. Which is preferred, a cash dividend or a stock dividend? For an investor, is it "show me the money" or is it wanting to grow the investment? Advantage/disadvantage to the corporation?Explanation / Answer
A. A cash dividend is a payment made by a company out of its earnings to investors in the form of cash. This transfers economic value from the company to the shareholders instead of the company using the money for operations. As, this does cause the company's share price to drop by roughly the same amount as the dividend.
A stock dividend, on the other hand, is an increase in the amount of shares of a company with the new shares being given to shareholders. Companies may decide to distribute this type of dividend to shareholders of record if the company's availability of liquid cash is in short supply.
B. Advantages of a preferred stock:
* less volatile than common stock
* carries less risk
* fixed income investment
* it can be converted easily
* stock value can appreciate
The best preferred stock we can invest is reedemable preferred stock because it can be buy again and can be removed from circulation.
C.Cash Dividend is better for an investor as a better rate of return can be earned and an investor can sell the shares to craete new one in market and the best advantage is that no tax is levied on it.
Few Advanytages:
* Income
* Market Hedge
* Can maintain payout in best way
* can buy back shares
Disadvantages:
* Cannot be used to grow business
* Share value cannot be increased