Question

Dividends Per Share Seventy-Two Inc., a developer of radiology equipment, has stock outstanding as follows: 80,000 shares of cumulative preferred 3% stock, $20 par and 410,000 shares of $25 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $30,000; second year, $75,000; third year, $100,000; fourth year, $100,000. Determine the dividends per share on each class of stock for each of the four years. Round all answers to two decimal places. If no dividends are paid in a given year, enter "0.00". 1st Year 2nd Year 3rd Year 4th Year Preferred stock (dividends per share) $ $ $ $ Common stock (dividends per share)

Answer 1

Cumulative preference shares are those shares which are entitled to get dividends along with past dividend arrears. All these sums are paid first to preference shares and if there any balance exist then it is paid to common shareholders.

Year	dividend	preference shares	Common shares
1	30,000	30,000	0.00
2	75,000	66,000	9,000
3	100,000	48,000	52,000
4	100,000	48,000	52,000

Dividend per year for cumulative preference shares is calculated as = 80,000*20*3%

Dividend per year = $ 48,000.

Dividend per share = dividend amount/number of shares.

Year	Dividend per share for preferred shares	dividend per share for common shares
1	0.38	0.00
2	0.83	0.02
3	0.60	0.13
4	0.60	0.13

Dividend per share = dividend amount /number of shares.

SUMMARY:

For preferred shares,

Number of shares = 80,000 shares.

Year 1 = 30,000/80,000= 0.38

Year 2 = 66,000/80,000= 0.83

Year 3 = 48,000/80,000= 0.60

Year 4 = 48,000/80,000= 0.60

Number of common shares = 410,000.

For year 1 = 0/410,000= 0.00

Year 2 = 9,000/410,000= 0.02

Year 3 = 52,000/410,000= 0.13

Year 4 = 52,000/410,000= 0.13

In the question, there is rate 3% for preferred shares. This rate is the dividend rate that the preferred shareholders have to get. Common shares have no this rate.