Question

With the upcoming annual shareholders' meeting only a week away, the Chief Executive Officer of a business had a great deal of information to prepare. Profits for the five-year-old plastics company were at record levels and $300,000 was available for dividends to be paid. But technological advancements in the thermoforming industry were forcing individual companies to make substantial investments in advanced production capacity to remain viable. The CEO would be recommending to the board of directors a $2.5 million corporate bond issue to pay for the improved production capabilities. In addition, the company would be offering a 401(k) retirement program. Also, the first 3% of an employee's salary contributed would be fully matched by the company. Answer parts 1. through 4. 1. The company has previously issued 30,000 shares of cumulative preferred stock that will earn dividends at 50.70 per share and 70,000 shares of common stock. Because no dividends were paid last year, how will the $300,000 declared for dividends be distributed? Preferred stockholders receive $ 42000. (Type an integer or a decimal.) Common stockholders receive . (Type an integer or a decimal.) i

Answer 1

Annual preferred dividend = Number of preferred shares x Dividend per share

= 30,000 x 0.70

= $21,000

Preferred dividend was not paid for the last year.

Dividend to be paid to preferred stockholders = Current year's dividend + Dividend in arrears for last year

= 21,000+21,000

= $42,000

Dividend to be paid to common stockholders = Total dividend declared - Dividend to be paid to preferred stockholders

= 300,000-42,000

= $258,000

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