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JAMB Economics 1984 Question 27

Question 27

Business Organisations

Which of the following is NOT true of debentures and debenture holders?

  1. A.Debentures are instruments for raising long-term capital by limited liability companies
  2. B.Debentures are fixed interest-bearing securities with specified maturity dates
  3. C.Debenture holders are creditors to the company and therefore do not share in the risk of the company
  4. D.Debenture holders are entitled to interest payments whether or not profits are made
  5. E.Preference shareholders receive their share of profits before debenture holders receive their entitlements.
Show the answer and explanation

Answer: E (Preference shareholders receive their share of profits before debenture holders receive their entitlements.)

Explanation

Debenture holders are creditors, so their interest is paid before any dividend goes to shareholders, preference or ordinary.