Answer to Question #8920 in Economics of Enterprise for Dan

Question

Assume the following capital structure:

Preffered stock: 6%, $50 par value, 1,000 shares issued and outstanding with dividends in arrears for three prior years (2007-2009)

Common Stock: $100 par value, 2,000 shares issued and outstanding.

Total Dividends declared and paid in 2010 were $50,000. How much of the 2010 dividend will be paid to the common stockholders assuming the preferred stock is cumulative?

A. $12,000
B. $50,000
C. $47,000
D. $38,000

Answer 1

C. $47,000

If preffered stock is 6% than 94% goes to Common stock. 94%*$50,000=$47,000