11A-8. LILL Corporation has issued 1,500 shares of preferred stock, which have a
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Question
11A-8. LILL Corporation has issued 1,500 shares of preferred stock, which have a par value of S60 each. The preferred dividend rate on this stock is 5 of par value. LILL has also issued 18,000 shares of common stock Calculate how much dividend would be paid to the owners of the preferred and common stock under each of the following scenarios: a. The dividend payment is S3,000. preferred stock is neither cumulative nor participating. The total b. Same as a. but with a total dividend payment of S12,000 c. The preferred stock is cumulative but not participating. Dividends were up- to-date for all years prior to two years ago. However, no dividends have been paid for the last two years. This year LILL announces a total dividend payment of $10,500. d. Same as c. but with a total dividend payment of $25,500. e. The preferred stock is not cumulative but it is participating. Once the common stockholders get an amount per share equal to the dividend of the preferred shareholders, then the two groups share equally in dividends ona per share basis. LILL announces a total dividend payment of $4,000. f. Same as e. but with a total dividend payment of $10,500. g. Same as e. but with a total dividend payment of $95,000. h. All other things being equal, which of these features would you like to have associated with preferred stock that you own?Explanation / Answer
preferred dividend
common dividend
total
1
current dividend
3000
3000
balance to common
0
0
2
current dividend
4500
4500
balance to common
7500
7500
3-
dividend in arrear
9000
9000
current dividend
1500
1500
balance to common
0
0
9000 = 4500*2
4-
dividend in arrear
9000
9000
current dividend
4500
4500
balance to common
12000
12000
9000 = 4500*2
5-
current dividend
4000
4000
pro rata share to common
0
0
participating to preferrd
0
0
balance to common
0
0
6-
current dividend
4500
4500
pro rata share to common
750
750
participating to preferrd
750
750
balance to common
4500
4500
7-
current dividend
4500
4500
pro rata share to common
43000
43000
participating to preferrd
43000
43000
balance to common
4500
4500
95000-9000 = 86000/2 =43000
8-
I would like to have cumulative feature with my preferred stock because in this case ,preferred stock holders would be assured about the payment of dividend in arrears
preferred dividend
common dividend
total
1
current dividend
3000
3000
balance to common
0
0
2
current dividend
4500
4500
balance to common
7500
7500
3-
dividend in arrear
9000
9000
current dividend
1500
1500
balance to common
0
0
9000 = 4500*2
4-
dividend in arrear
9000
9000
current dividend
4500
4500
balance to common
12000
12000
9000 = 4500*2
5-
current dividend
4000
4000
pro rata share to common
0
0
participating to preferrd
0
0
balance to common
0
0
6-
current dividend
4500
4500
pro rata share to common
750
750
participating to preferrd
750
750
balance to common
4500
4500
7-
current dividend
4500
4500
pro rata share to common
43000
43000
participating to preferrd
43000
43000
balance to common
4500
4500
95000-9000 = 86000/2 =43000
8-
I would like to have cumulative feature with my preferred stock because in this case ,preferred stock holders would be assured about the payment of dividend in arrears
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