A company issues 100,000 shares of preferred stock for $40 a share.The stock has fixed annual dividend rate of 5% and a par value of $3 per share.Preferred stockholders can anticipate receiving a dividend of:

Question

Quizplus · Accepted Answer

The total amount of money raised from issuing preferred stock is 100,000 x $40 = $4,000,000. 
Since the fixed annual dividend rate is 5%, the total amount of dividends paid each year is 5% x $4,000,000 = $200,000. 
Each share has a par value of $3, so the total number of shares issued is $4,000,000/$3 = 1,333,333. 
Therefore, the dividend per share is $200,000/1,333,333 = $0.15. 
Multiplied by the 100,000 preferred stock shares, the total dividend payment each year is $15,000 (B).

A Company Issues 100,000 Shares of Preferred Stock for $40