AFM101 Lecture Notes - Lecture 11: Retained Earnings, Share Capital, Issued Shares

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM101
• Professor: Grace Loney

Document Summary

Preferred, arrears (6,000 x x 2 years),000. The dividend per common share was lower under the second assumption because the dividend per preferred share increased because of dividends in arrears while at the same time total dividends remained the same. Investors in shares expect to benefit from their investments in two ways: (1) receipt of dividends, preferably in cash, and (2) appreciation in the value of the shares over time. Preferred shareholders receive usually cash dividends when they are declared by the company"s board of directors. However, preferred share prices do not fluctuate significantly because many of the preferred shares issued by companies are callable or redeemable at specific prices that are slightly higher than the issuance price. In contrast, common shares may pay low dividends compared to preferred shares, but common shareholders would be entitled to receive any excess of net earnings over the preferred dividends.