Question

Dividends Andrews Company has $80,000 available to pay dividends. It has 2,000 shares of 10%, $100 par, preferred stock and 30,000 shares of $10 par common stock outstanding. The preferred stock is selling for $125 per share, and the common stock is selling for $20 per share. Required 1. Determine the amount of dividends to be paid to each class of shareholder for each of the following independent assumptions. If an amount box required no entry, leave it blank. a. Preferred stock is nonparticipating and noncumulative. Andrews Company Schedule of dividends to be paid Preferred Common Preferred dividend $ Remainder $ Total $ $ b. Preferred stock is nonparticipating and cumulative. Preferred dividends are 2 years in arrears at the beginning of the year. Andrews Company Schedule of dividends to be paid Preferred Common Dividends in arrears $ $ Current preferred dividend Remainder Total $ $ c. Preferred stock is fully participating and cumulative. Preferred dividends are 1 year in arrears at the beginning of the year. Andrews Company Schedule of dividends to be paid Preferred Common Dividends in arrears $ $ Current preferred dividends Common proportional share Remainder Total $ $ 2. For 1(a), compute the dividend yield on the preferred stock and the common stock. Dividend yield Preferred stock % Common stock % No Check My Work uses Previous

Answer 1

1a)

	Preferred	common stock	total
case a	20000	80000-20000=60000	80000
case b	(20000*2)past year+ 20000 40000+20000 60000	80000-60000=20000	80000
case c	44000	36000	80000

**Preferred dividend per year :2000*100*.10= 20000

for case c)preferred dividend paid (before participation) =20000current+20000last year=40000

Common stock outstanding: 30000*10= 300000

Common stock dividend up to rate paid on preferred stock(10% dividend) = 300000*10%= 30000

Total dividend paid = 40000preferred +30000 common =70000

dividend available for participation = 80000-70000 =10000 to be distributed in capital ratio

Total capital = 200000 preferred+300000common stock =500000

preferred: 10000*200000/500000=4000

common stock :10000*300000/500000= 6000

Total preferred dividend :40000+4000=44000

common stock : 30000+6000= 36000

2)Dividend yield =Dividend /price

Preferred dividend per share in 1(A)= 20000/2000=$ 10per share

dividend yield =10/125 = .08 or 8%

common stock dividend per share=60000/30000=$ 2

Dividend yield : 2/20

             = .10 or 10%

2)