Assume the Following Capital Structure

question 30

Multiple Choice

Assume the following capital structure:
Preferred 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 preferred stockholders assuming the preferred stock is cumulative?

• A)$12,000
• B)$3,000
• C)$47,000
• D)$38,000

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Definitions:

Debt-Equity Ratio

The debt-equity ratio is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets, often used to assess financial leverage.

Residual Dividend Policy

A strategy where a company pays dividends out of the residual or leftover equity only after all project capital requirements and operational expenses are met.

After-Tax Earnings

The profit of a company after all taxes have been deducted from revenues.

Par Value

The face value of a bond or the stock value stated in the corporate charter, which may differ from the market value.