Answer:
Preferred Shares always get paid before Common Shares. In this case the Preferred Shares are Cumulative. This means that when they are not paid their full dividends in one year, the remaining balance is deferred to the next period.
Preference Shares are quoted at 3% so they get dividends worth 3% of their worth.
= $20 * 20,000 * 3%
= <em>$12,000</em>
<u>Year 1 </u>
Preference Shares to get $12,000
Only $4,600 announced.
Preference Shares take all remaining
= 12,000 - 4,600
= $7,400 Deferred till next period.
Common Shares get nothing.
<u>Preference Shares Dividends Per Share </u>
= Dividends / No. Of Shares
= 4,600/20,000
= $0.23
No Common Share Dividend per Share
<u>Year 2 </u>
Preference Shares = Amount from last year + This year Dividend
= 7,400 + 12,000
= $19,400
Dividends declared this year = $7,600
<em>Preference take all. </em>
= 19,400 - 7,600
= $11,800 accrued till next year
<u>Preference Shares Dividends Per Share</u>,
= 7,600/20,000
= $0.38
<u>Year 3</u>
Preference Shares Dividends
= Accumulated Outstanding + This year dividends
= 11,800 + 12,000
= $23,800
Dividends declared $46,550
Preference take their share leaving the following for Common Shareholders
= 46,550 - 23,800
= $22,750
<u>Preference Shares Dividends Per Share</u>
= 23,800/20,000
= $1.19
<u>Common Share Dividend per share</u>
= 22,750/25,000 common shares
= $0.91
<u>Year 4 </u>
Preference Shares will be $12,000 as deferred Dividends have been paid.
Dividends Declared $89,250
Amount left for Common Shareholders
= 89,250 - 12,000
= $77,250
<u>Preference Shares Dividends Per Share</u>
= 12,000/20,000
= $0.6
<u>Common Share Dividend per share</u>
= 77,250/25,000
= $3.09