Tag: equity and preference shares

Questions Related to equity and preference shares

The money raised by issue of equity shares is called ________ share capital.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. Equity

  2. Preference

  3. Bonus

  4. Right

Show answer
Correct Option: A
Explanation:

The money raised by issue of equity shares is called equity share capital.Equity share represent the ownership of a company  and thus thus the capital raised by equity shares are also known as ownership capital or ownership funds.

________ shares is the most important source of raising long term capital by a company.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. Equity

  2. Preference

  3. Bonus

  4. Right

Show answer
Correct Option: A
Explanation:

Equity shares is the most important source of raising long term capital by a company.

Equity shares represent the ownership of the a company and thus is known as owner's capital or owner's funds. Equity share capital is the prerequisite before creation of a company.

Equity shares are suitable for investors who are willing to assume risk for ________ returns.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. Lower

  2. Higher

  3. Medium

  4. Equal

Show answer
Correct Option: B
Explanation:

Equity shares represent the ownership of the company. Equity share holders do not get a fixed dividend but are paid on the basis of earnings by the company.  They enjoy the rewards as well as bear the risks of theownership. Hence, Equity shares are suitable for investors who are willing to assume risk for higher returns.

Which of the following is a merit of equity shares?

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. Equity capital provides credit worthiness to the company.

  2. Equity shares are suitable for investors who are willing to assume risk for higher returns.

  3. Equity capital serves as permanent capital.

  4. All of the above

Show answer
Correct Option: D
Explanation:

Equity Share capital is also known as ownership capital or owner's funds. The merits of equity shares are, They provide credit worthiness to the company. Equity shares are suitable for investors who are willing to assume risks for higher returns, Equity capital serves as permanent capital.

The cost of equity shares is generally _______ as compared to the cost of raising funds through other sources.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. more

  2. less

  3. medium

  4. equal

Show answer
Correct Option: A
Explanation:

Equity shares is the most important source of raising long term capital by a company. Equity shares represent the ownership of the a company and thus is known as owner's capital or owner's funds. 

Hence the cost of equity shares is generally higher as compared to the cost of raising funds through other sources.

As equity capital stands last in the list of claims, it provides a cushion for __________.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. Debtors

  2. Creditors

  3. Owners

  4. Customers

Show answer
Correct Option: B
Explanation:

Equity capital are permanent source of capital and can be only returned at the time of liquidation of the company. Thus equity capital stands last in the list of claims, it provides a cushion for creditors claims that needs to be settled at the time of liquidation.

Investors who need steady income may not prefer equity shares as they get ___________ returns.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. Fixed

  2. Fluctuating

  3. Higher

  4. Lower

Show answer
Correct Option: B
Explanation:

Investors who need steady or fixed dividend from the capital invested may not prefer equity shares as they fluctuating returns on the basis of the earnings of the company and receive all the leftovers after all the other claims are delt with.

Equity capital serves as ____________ capital as it is to be repaid only at the time of liquidation of a company.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. Temporary

  2. Permanent

  3. Fluctuating

  4. Fixed

Show answer
Correct Option: B
Explanation:

Equity share capital is the prerequisite before the creation of a company. 

It is a source of finances raised for the formation of the company and it also represents the ownership of the company.
Equity capital serves as a permanent capital as it is to be repaid only at the time of liquidation.

Equity shares represent the __________ of a company.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. Creditors

  2. Debtors

  3. Ownership

  4. Capital

Show answer
Correct Option: C
Explanation:

Equity shares is the most important source of raising long term capital by a company. 

Equity shares represent the ownership of the a company and thus is known as owner's capital or owner's funds. Equity share capital is the prerequisite before creation of a company.

If the rights of a particular class of share holders is to be changed then the company should call __________.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. shareholders meeting

  2. directors

  3. class meetings

  4. preference shareholder meeting

Show answer
Correct Option: C
Explanation:

A company is an association of several persons. Decisions are made according to the view of the majority. Class meetings are meetings which are held by holders of a particular class of shares, e.g., preference shareholders. Such meetings are normally called when it is proposed to vary the rights of that particular class of shares.