Question

Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark Mountain regions. The following disclosure note appeared in the company’s 2021 annual report:

Note 5. Convertible Preferred Stock (in part):
The Company has the following Convertible Preferred Stock outstanding as of September 2021:

Date of issuance:	June	17, 2018
Optionally redeemable beginning:	June	18, 2020
Par value (gross proceeds):	$	2,800,000
Number of shares:		140,000
Liquidation preference per share:	$	20
Conversion price per share:	$	25.34
Number of common shares in which to be converted:		110,497
Dividend rate:		6.720	%

The Preferred Stock is convertible at any time by the holders into a number of shares of Ozark’s common stock equal to the number of preferred shares being converted times a fraction equal to $20 divided by the conversion price. The conversion prices for the Preferred Stock are subject to customary adjustments in the event of stock splits, stock dividends and certain other distributions on the Common Stock. Cumulative dividends for the Preferred Stock are payable in arrears, when, as, and if declared by the Board of Directors, on March 31, June 30, September 30, and December 31 of each year.

The Preferred Stock is optionally redeemable by the Company beginning on various dates, as listed above, at redemption prices equal to 115% of the liquidation preference. The redemption prices decrease 1% annually thereafter until the redemption price equals the liquidation preference, after which date it remains the liquidation preference.

Required:
1. What amount of dividends is paid annually to a preferred shareholder owning 150 shares of the Series A preferred stock?
2. If dividends are not paid in 2022 and 2023, but are paid in 2024, what amount of dividends will the shareholder receive?
3. If the investor chooses to convert the shares in 2022, how many shares of common stock will the investor receive for his/her 150 shares?
4. If Ozark chooses to redeem the shares on June 18, 2022, what amount will the investor be paid for his/her 150 shares?

Answer 1

Answer :-

1) Ans :
Par Value preffered shares	Dividend Rate	Total Annual Preffered Dividend	Numberof preffered Shares	Dividend per preffered shares	Shares Ownes	Annual Preffered Dividend 150 Shares
2,800,000	6.720%	$188,160	$140,000	1.34	150	201
2) Ans:
Amount of Dividends = $ 201 x 3 years   = 603
3) Ans :
No. of Convertible Pref Shares owned	Conversion Factor	No. of Common Shares received
150	0.79(20/25.34)	118.5
4) Ans:-
	Per Share Amount	Total 150 Shares
Liquidation Preference	$20
Redemption %	115%
Redemption price, June 18, 2020	23
% Reduction in Redemption Price (2*2%)	4%
Redemption price June 18,2022 (23 x 96%)	$22.08	$3,312