A Firm Has an Outstanding Issue of 1,000 Shares of Preferred

question 105

Multiple Choice

A firm has an outstanding issue of 1,000 shares of preferred stock with a $100 par value and an 8 percent annual dividend. The firm also has 5,000 shares of common stock outstanding. If the stock is cumulative and the board of directors has passed the preferred dividend for the prior two years, how much must the preferred stockholders be paid prior to paying dividends to common stockholders?

• A) $ 8,000
• B) $16,000
• C) $24,000
• D) $25,000

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Definitions:

EBIT

A financial metric used to evaluate a company's operating performance by calculating its profit without the effects of financing and tax expenses.

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization, a measure used to analyze and compare profitability between companies and industries.

Operating Net Cash Flow

The amount of cash generated by a company’s normal business operations over a specific period.

Profitable New Plant

A profitable new plant refers to a newly established manufacturing or production facility that generates earnings in excess of its operating and capital costs.