Question

y udi Slid e rs meeting only a week away, the Chief Executive Oncer of a business had a great deal of information to prepare. Profits for the five-year-old plastics company were at record levels and $300,000 was available for dividends to be paid But technological advancements in the thermoforming industry were forcing individual companies to make substantial investments in advanced production capacity to remain viable. The CEO would be recommending to the board of directors a $2.5 million corporate bond issue to pay for the improved production capabilities. In addition, the company would be offering a 401(k) retirement program. Also, the first 3% of an employee's salary contributed would be fully matched by the company. Answer parts 1. through 4. 1. The company has previously issued 30,000 shares of cumulative preferred stock that will eam dividends at 50.70 per share and 70,000 shares of common stock. Because no dividends were paid last year, how will the $300,000 declared for dividends be distributed? Preferred stockholders receive (Type an integer or a decimal)

Answer 1

In cumulative preference share, the previous unpaid dividend is paid along with present years dividend.

The amount to distributed to preference shareholders = number of preference shares outstanding x preference dividend per share x (1+number of years dividend not paid)

= 30000 x 0.70 x (1+1)
= $42,000

(Note: preference shareholders have a preferential right over the dividend unpaid to them over common shareholders).

Preference shareholders receive $42,000