Stinson Corporation has 7% participating preferred shares.In 2015 the company pays common shareholders dividends that are 9% of common par value.What,if any,additional dividend will preferred shareholders receive?

Question

Quizplus · Accepted Answer

Since the preferred shares are participating, they receive both a fixed dividend and a share of the common dividend. In this case, the common dividend is 9% of par value, so the preferred shareholders are entitled to an additional 2% (9% - 7%) of their par value as their share of the common dividend. Therefore, the additional dividend that the preferred shareholders will receive is 2%.

Stinson Corporation Has 7% Participating Preferred Shares