Webster Industrial Products has both common and noncumulative preferred stock outstanding. The dividends on these stocks are $1.10 per quarter per share of common and $2.50 per quarter per share of preferred. The company has not paid any dividends for the past two quarters but is expected to pay dividends on both the common and the preferred stock next quarter. What is the minimum amount the firm must pay per share to its preferred stockholders next quarter if it plans to pay a common dividend?

Question

Quizplus · Accepted Answer

The preferred stockholders are entitled to receive their dividend before the common stockholders. Therefore, the minimum amount the firm must pay per share to its preferred stockholders next quarter is $2.50, regardless of whether they pay a common dividend or not. Therefore, the answer is choice C.

Webster Industrial Products Has Both Common and Noncumulative Preferred Stock