Question

As head of Adita Inc., potential investors are asking questions about the company’s dividend payment history. The investors are also curious how dividend payments differed for common and preferred shareholders. To help answer their questions, the following Tableau Dashboard is provided.

Continued

Year 1 Cash Dividends Distributed: $25,000

Year 2 Cash Dividends Distributed: $30,000

Year 3 Cash Dividends Distributed: $210,000

Year 4 Cash Dividends Distributed: $360,000

Preferred Stock: 70,000 shares

Common Stock: 180,000 shares

Year 1 Common Stock Share Price: $14

Year 2 Common Stock Share Price: $20

Year 3 Common Stock Share Price: $18

Year 4 Common Stock Share Price: $25

1. What is the total cash dividends paid out for Years 1, 2, 3, and 4 combined?
2. Assume that preferred stock isnoncumulative and compute the Year 4 cash dividends paid to (a) preferred stockholders and (b) common stockholders.

Answer 1

Answers:

1. What is the total cash dividend paid out for years 1,2,3,and 4 combined?

Ans : $625,000 (Add the amounts for all 4 four years)

2. Assume that preferred stock is non cumulative and compute the year 4 cash dividends paid to (a) preferred stockholders and (b) common stockholders.

Ans:

a) Value of preferred stock in year 4 is $1,400,000 (70,000 x $20).Stock dividend rate for preferred stock is 6%.

Hence dividend paid out for preferred stock is 1,400,000 x .06 = $84,000

b) dividends paid to common stockholders = 360,000 - 84,000 = $276,000