3. A company has outstanding 11.00 mision snares or $3.00 par common stock and 1

Question

3. A company has outstanding 11.00 mision snares or $3.00 par common stock and 1.2 miltion shares or $4.20 par preferred stock. The preferred stock has an 10% didena rate The company deciares $32000 in total avidends for the year whicn or the tolowing is corect ir the preterred stocknolders onty have a curent dvidend preference? O O Preterrea stocknoicers wai recelve the entre $320.000. and tney must also be paid s100000 betore the end O preferred itokholders wu receive the entre s320,000, but wm receve noting more renting to ??? Preterred stocsnoiders wireceve the entre $320000, and they must also be paid $100.000 sometime in didends, common stooroors wal receive Prenerrea stockhooers via receive $3.2.000 or 10% orme total the remaining $208.000 of the current accounnng period. Common stockholders wil receive nothing aidend deciaration common stocknolders wt recelve naring the tare before common stockholder% wn receive anything

Explanation / Answer

Total dividend declared = 320000

Number of preference shares = 1.2 million shares

Par value of preference share = 4.2

Dividend on preferred stock = 4.2*10% = 0.42

Total preferred dividend = 0.42*1.2 million shares = $504000

Preference shareholders are entitled to receive $504000 but they will receive upto the amount declared as dividend which is $320000. Common stockholders will receive nothing.

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