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.If sufficient dividends are declared,preferred stockholders can anticipate receiving dividends of:
A) $5,000 each year.
B) $15,000 each year.
C) 5% of net income each year.
D) $3 per share.

Question

Quizplus · Accepted Answer

The company has issued 100,000 shares of preferred stock at $40 per share, which amounts to a total of $4,000,000. 
Since the preferred stock has a fixed annual dividend rate of 5%, the annual dividend per share would be 5% of the par value of $3, which is $0.15 per share.
The total annual dividend payable to preferred stockholders would be:
$0.15 x 100,000 shares = $15,000 per year. 
Therefore, choice B is the correct answer.

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