National Health Corporation (NHC) has a cumulative preferred stock issue outstan

Question

National Health Corporation (NHC) has a cumulative preferred stock issue outstanding, which has a stated annual dividend of $8 per share. The company has been losing money and has not paid preferred dividends for the last five years. There are 350,000 shares of preferred stock outstanding and 650,000 shares of common stock.

a) How much is the company behind in preferred dividends?

b) If NHC earns $13,500,000 in the coming year after taxes but before dividends, and this is all paid out to the preferred stockholders, how much will the company be in arrears (behind in payments)? Keep in mind that the coming year would represent the sixth year.

c)Would any be available in common stock dividends in the coming year if $13,500,000 is earned as explained in part b?

Explanation / Answer

a>Total Liability of dividend on Preferred stock=Divdend*No of stock*years=350000*8*5 14000000 b>Arreears after the company pays 13,500,000 = 14000000-13500000 500000 c>No there will not be any dividend left for distribution to common stock holders as there is still some arrear to be given to preferred stock holders

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