The cumulative dividend feature is necessary to protect the rights of preference shareholders.

Name: The cumulative dividend feature is necessary to protect the rights of preference shareholders.
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Question

Quizplus · Accepted Answer

The cumulative dividend feature ensures that if the company fails to pay dividends in one year, the unpaid dividends accumulate and must be paid before any dividends can be paid to common shareholders. This protects the rights of preference shareholders and ensures they receive a return on their investment.

The Cumulative Dividend Feature Is Necessary to Protect the Rights