Homework Answers
Solution a:
Annual preferred dividend = 20000*$50*8% = $80,000
Distribution to preferred:
Year 1 = $0
Year 2 = $80000 + arrears = 80000+80000 = $160,000
Year 3 = $80,000
Distribution to common:
Year 1 = $0
Year 2 = $280000 - $160000 = $120,000
Year 3 = $80000 -$80000 = $0
Solution b:
Distribution to preferred:
Year 1 = $0
Year 2 = $80000
Year 3 = $80,000
Distribution to common:
Year 1 = $0
Year 2 = $280000 - $80000 = $200,000
Year 3 = $80000 -$80000 = $0
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