chose the correct answer Which of the following is true 1If

chose the correct answer

Which of the following is true?

1-If a company files for bankruptcy, preferred shareholders\' claims are paid prior to creditors\' claims.

2-If a company files for bankruptcy, preferred shareholders\' claims are paid prior to common shareholders\' claims.

3-In the event of bankruptcy and subsequent liquidation, preferred shareholders only receive funds after creditors and common shareholders.

4-If a company files for bankruptcy, preferred shareholders\' claims are paid prior to managers\' claims.

Solution

option 2 is correct.

First in line to be paid off during bankruptcy is senior debt, which is backed by company assets. Next is junior debt, which is not secured by assets. After that comes preferred stock, which usually does not give the owner the power to vote on company issues, and finally common, or voting stock.