A firm is short on cash. Which of the following would be paid first?
A) Dividends to common stock owners
B) Cash to buy shares of stock from shareholders
C) Cash to buy bonds from current bondholders
D) Interest to bond owners
E) Dividends to preferred stock owners

Question

Quizplus · Accepted Answer

Interest payments to bond owners have the highest priority in a firm's cash flow. Bondholders have a legal contract that entitles them to receive interest payments, and failure to pay can result in default and other negative consequences for the firm.

A Firm Is Short on Cash