Consider this equation:
1 answer:
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Answer:
for year 1
common stock = $1.75 per share
preferred stock = Zero
for year 2
common stock = $4.25 per share
preferred stock = $0.3 per share
for year 3
common stock = $3 per share
preferred stock = $2 per share
Step-by-step explanation:
step 1
preferred stock value = (40000 shares * $150) = $6000000
common stock value = (100000 shares * $5) = $500000
step 2
For year 1:
Dividend on preferred stock;
= $120000
But total dividend in the question was $70000 therefore total amount of dividend on cumulative preferred stock is $70000.
hence, dividend per share
= $1.75 per share
Dividend on common stock;
70,000 - 70,000 = Zero
as total dividend distributed in year 1 is insufficient for cumulative preferred stock therefore no dividend will be paid on common stock.
For year 2:
Dividend on cumulative preferred stock;
= $120000
extra dividend of year 1 ($120000 - $70000) = $50000
Thus total dividend on cumulative preferred stock
($120000 + $50000) = $170000
So dividend per share
= $4.25 per share
Dividend on common stock;
($200000 – $170000) = $30000
dividend per share
= $0.3 per share
For year 3:
Dividend on cumulative preferred stock;
= $120000
total dividend on cumulative preferred stock $120000
dividend per share
= $3 per share
No dividend was extra in the year 2 therefore only available dividend of this year will be paid.
Dividend on common stock;
($320000 – $120000) = $200000
dividend per share
= $2 per share