Common stock is the most common security to provide finance for the corporate. This way of financing has the following disadvantages:

Irredeemable: Common stock cannot be redeemed during the lifetime of the company. Over capitalization is a very costly phenomenon financially so all companies must search for optimum capital structure.

Obstacles in management: Common stock holders can put obstacles in management by manipulation and organizing themselves. The managers may use their power in such ways that are against the wealth of the shareholders.

Limited income to investor: The investors who desire to invest in safe securities with a fixed income have no attraction for equity shares.

Loss of leverage contributions: When the company raises capital only with the help of equity, the company cannot take advantage of leverage

“Irredeemable”, “Obstacles in management”, “Limited income to investor” and “Loss of leverage contributions” are disadvantages of common stock, so the correct answer is E. “No fixed dividend payment obligation” is one of the advantages of common stock.

Advantages of common stock are as follows:

Permanent sources of finance: Common stock is a long-term permanent nature of sources of finance; hence, it can be used for long-term or fixed capital requirement of the business.

No fixed dividend payment obligation: The issuance of common stock does not create any obligation to pay a fixed rate of dividend. If the company earns a profit, owners are eligible for profit, they are eligible to get dividend otherwise, and they cannot claim any dividend from the company.

Lower cost of capital: Cost of capital is the major factor, which affects the value of the company. A company with a strong capital base can secure funding less costly as the capital base is considered as a buffer for risks buy the debtors.

Retained earnings: When the company have more share capital, it will be suitable for retained earning which is the fewer cost sources of finance while compared to other sources of finance.