2. A company had stock outstanding as follows during each of its first three yea
ID: 2428409 • Letter: 2
Question
2. A company had stock outstanding as follows during each of its first three years of operations: 2,000 shares of $10, $100 par, preferred stock and 50,000 shares of $10 par common stock. The amounts distributed as dividends are presented below. Determine the total and per share dividends for each class of stock for each year by completing the schedule.
Common and preferred
Year Dividends Total Per Share Total Per Share
1 $10,000
2 $25,000
3 $60,000
3. A corporation, which had 20,000 shares of common stock outstanding, declared a 3-for-1 stock split. (a) What will be the number of shares outstanding after the split? (b) If the common stock had a market price of $240 per share before the stock split, what would be an approximate market price per share after the split?
Explanation / Answer
OK I'm going to assume that the preferred dividends are $10 per share and they are cumulative which means if they are not paid in one year you have to go back and pay them the next year before you can pay any others out. Year 1 10,000 to preferred $5 per share Year 2 25,000 to preferred ($15K for current $10K to make up shortage in prior) $12.50 per share Year 3 25,000 to preferred ($20K for current $5K to make up shortage in prior) $12.50 per share; 35,000 to common or $0.70 per share. 60,000 (20,000*3) and $80 (240/3) after the split.
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