2. The Mark Company has $250,000 to pay dividends. The company has 25,000 shares

Question

2. The Mark Company has $250,000 to pay dividends. The company has 25,000 shares of 8%, $50 par, preferred stock and 100,000 shares of $5 par common stock outstanding. The common stock is currently sellin the preferred stock is selling for $95 per share on the stock market. g for $43 per share and Required: Determine the amount of dividends to be paid for each class of stock in each of the independent situations. 1) Preferred stock is nonparticipating and cumulative; dividends are in the arrears for I year at the beginning of the year 2) Preferred stock is fully participating and cumulative. 3) Preferred stock is nonparticipating and noncumulative 4) Compute the dividend yield on the preferred stock and common stock for number 3.

Explanation / Answer

Preference Share capital (25000X$50) $12,50,000.00 Common stock(100000X$5) $5,00,000.00 Dividend to be paid on Preference share capital @8% for Current Year ($12,50,000X8%) $1,00,000.00 Arrears of Dividend to be paid on Preference share capital @8% for Current Year($12,50,000X8%) $1,00,000.00 Dividend to be paid on Common stock $50,000.00 (250000-100000-100000) Total Dividend to be paid $2,50,000.00 1) Preference shares are non-participating and cumulative Dividend to be paid on Preference share capital @8% for Current Year $1,00,000.00 Arrears of Dividend to be paid on Preference share capital @8% for Current Year $1,00,000.00 Total $2,00,000.00 2) Preference shares are Fully participating Lets suppose 5%  dividend to be paid on common stock Dividend to be paid on Preference share capital @8% for Current Year $1,00,000.00 Arrears of Dividend to be paid on Preference share capital @8% for Current Year $1,00,000.00 dividend to be paid on common stock @5% ($500000*5%) 25000 Balance profits to be paybale to Preference share capital(250000-100000-100000-25000) $25,000.00 3) Preference Stock is Non-participating and Non-cumulative Dividend to be paid on Preference share capital @8% for Current Year $1,00,000.00 4) Dividend Yeild Dividend Yeild =preference Dividend per share/Common stock dividend per share 4/0.1= 40 Preference dividend per share 4 (100000/25000) Common stock dividend per share 0.1 (50000/500000)

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