1. What are preference shares?
Answer:
Preference shares are a type of share issued by a company that gives shareholders priority
over ordinary shareholders in receiving dividends, up to a specified maximum amount.
2. How do preference shareholders differ from ordinary shareholders
regarding dividends?
Answer:
Preference shareholders are entitled to receive dividends before ordinary shareholders, but
only up to a fixed limit. Any remaining dividend after paying preference shareholders goes to
ordinary shareholders.
3. How is the dividend on preference shares usually determined?
Answer:
The dividend on preference shares is normally fixed as a percentage of the nominal value of
the shares.
4. Illustrate how preference share dividends are calculated using an
example.
Answer:
If a company issues 1 million preference shares with a nominal value of £1 each at a dividend
rate of 6%, preference shareholders are entitled to receive £60,000 (6% of £1 million) from the
company’s annual dividend before any payment is made to ordinary shareholders.
5. What happens if the company’s total dividend exceeds the preference
dividend entitlement?
Answer:
Any excess dividend beyond the fixed amount payable to preference shareholders is distributed
to ordinary shareholders.
Answer:
Preference shares are a type of share issued by a company that gives shareholders priority
over ordinary shareholders in receiving dividends, up to a specified maximum amount.
2. How do preference shareholders differ from ordinary shareholders
regarding dividends?
Answer:
Preference shareholders are entitled to receive dividends before ordinary shareholders, but
only up to a fixed limit. Any remaining dividend after paying preference shareholders goes to
ordinary shareholders.
3. How is the dividend on preference shares usually determined?
Answer:
The dividend on preference shares is normally fixed as a percentage of the nominal value of
the shares.
4. Illustrate how preference share dividends are calculated using an
example.
Answer:
If a company issues 1 million preference shares with a nominal value of £1 each at a dividend
rate of 6%, preference shareholders are entitled to receive £60,000 (6% of £1 million) from the
company’s annual dividend before any payment is made to ordinary shareholders.
5. What happens if the company’s total dividend exceeds the preference
dividend entitlement?
Answer:
Any excess dividend beyond the fixed amount payable to preference shareholders is distributed
to ordinary shareholders.
