Fritz Corporation has 800,000 shares of preferred stock and 1,800,000 shares of

Question

Fritz Corporation has 800,000 shares of preferred stock and 1,800,000 shares of common stock. The cumulative preferred stock has a stated dividend of id=mce_marker.75 per share. Under normal conditions, Kreisler pays out preferred dividends and 30% of remaining earnings to common stockholders, however, because of a severe recession, Fritz retained all earnings last year. This year, Fritz earned net income of $5 million.
Calculate the dividend per share to be received by the common stockholders this year.

Explanation / Answer

Preferred Stock dividends from last year = $2.5 × 800,000 = $2,000,000 Preferred Stock dividends this year = $2.5 × 800,000 = $2,000,000 Therefore preferred stockholders would get $4,000,000 out of the $6,400,000 because these are cumulative preferred stock. Earnings available to common stockholders = $6,400,000 - $4,000,000 = $2,400,000 Dividends to be paid to common stockholders = $2,400,000 × 30% = $720,000 Dividend per share to be received by common stockholders = $720,000 ÷ 1,800,000 = $0.40

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