A firm has issued cumulative preferred stock with a $100 par value and a 12 percent annual dividend. For the past two years, the board of directors has decided not to pay a dividend. At the end of the current year, the preferred stockholders must be paid ________ prior to paying the common stockholders.
A) $0/share
B) $12/share
C) $24/share
D) $36/share

Question

Quizplus · Accepted Answer

Cumulative preferred stock requires that any missed dividends be paid in arrears before any dividends can be paid to common stockholders. Since the firm has not paid dividends for two years, the preferred stockholders are owed $24/share for the past two years plus $12/share for the current year, totaling $36/share.

A Firm Has Issued Cumulative Preferred Stock with a $100