Question

Baltimore Energy Corporation intends to issue 100,000 shares of non-cumulative preferred stock, par value $100 per share, entitled to receive dividends at the rate per annum of 5.00% per share on the par value (equivalent to $5.00 per annum per share). Assume the Corporation is expected to have funds legally available for dividends as noted below and the Board of Directors is expected to pay out one quarter of those funds as dividends. Indicate for each year and in total how much the preferred shareholders and the common shareholders would receive in dividends.

	Year 1	Year 2	Year 3	Year 4	Year 5	Total
Funds Legally Avail for Dividends	$800,000	$1,800,000	$2,400,000	$2,800,000	$3,500,000	$11,300,000
Dividends Declared	$200,000	$450,000	$600,000	$700,000	$875,000	$2,825,000
Amount Paid to Preferred Stockholders
Amount Paid to Common Shareholders

Answer 1

Annual dividend to preferred stockholders = Number of preferred shares x Dividend per share

= 100,000 x 5

= $500,000

	Year 1	Year 2	Year 3	Year 4	Year 5	Total
Funds Legally Avail for Dividends	$800,000	$1,800,000	$2,400,000	$2,800,000	$3,500,000	$11,300,000
Dividends Declared	$200,000	$450,000	$600,000	$700,000	$875,000	$2,825,000
Amount Paid to Preferred Stockholders	200,000	450,000	500,000	500,000	500,000	500,000
Amount Paid to Common Shareholders	0	0	100,000	200,000	375,000	2,325,000

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