Whenever the dividend rate on preferred shares is higher than the rate the corporation earns on its assets,the effect of issuing preferred shares is to increase the dividend rate earned by common shareholders.

Question

Quizplus · Accepted Answer

Issuing preferred shares with a dividend rate higher than the corporation's earnings rate on its assets dilutes the earnings available for common shareholders, as preferred dividends are paid out before any dividends are distributed to common shareholders. This typically reduces the amount available for common shareholders, not increases it.

Whenever the Dividend Rate on Preferred Shares Is Higher Than