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

question 170

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 not paid the preferred dividend for the prior two years,how much must the preferred stockholders be paid (in total,not per share) prior to paying dividends to common stockholders at the end of third year?

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

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Definitions:

Taxes

Mandatory payments made to the government, taken from individuals' earnings and company gains, or included in the prices of certain products, services, and dealings.

Short Run

The short run is a time period in which at least one input is fixed, limiting the ability of a firm to adjust to market changes.

Long Run

A period in which all inputs and factors of production can be varied, and all costs are variable, allowing for complete adjustment to changes.

Recession

A temporary downturn in economic activity, characterized by decreased trade and industrial production, usually recognized by consecutive quarters of declining GDP.