A firm has an outstanding issue of 1,000 shares of preferred stock with a $100 par value and an 8percent annual dividend. The firm also has 5,000 shares of common stock outstanding. If the stockis cumulative and the board of directors has passed the preferred dividend for the prior two years, how much must the preferred stockholders be paid prior to paying dividends to common stockholders?

Question

Quizplus · Accepted Answer

The preferred stockholders must be paid for the current year and the two prior years of missed dividends. The annual dividend is 8% of $100 par value, which is $8 per share. For 1,000 shares, this is $8,000 per year. Over three years, this totals $24,000.

A Firm Has an Outstanding Issue of 1,000 Shares of Preferred