Question

Could you please include your calculations, TY.

Allison Company has 40,000 shares of $320 par value, 5% cumulative preferred stock and 140,000 shares of $80 par value common stock. Allison declares and pays cash dividends amounting to $900,000.

If no arrearage on the preferred stock exists, how much in dividends per share (use two decimal places) is paid to the common stockholders?

Select one:

A. $ 6.44

B. $16.00

C. $ 1.86

D. $ 4.00

Answer 1

Preferred Stock:

Number of Stock = 40,000
Par Value = $320

Value of Preferred Stock = Number of Stock * Par Value
Value of Preferred Stock = 40,000 * $320
Value of Preferred Stock = $12,800,000

Annual Dividend Rate = 5%

Annual Dividend = 5% * $12,800,000
Annual Dividend = $640,000

Common Stock:

Number of Stock = 140,000
Par Value = $80

Allison Company declared and paid dividend of $900,000

Dividend Paid to Preferred Stockholders = $640,000

Dividend paid to Common Stockholders = $900,000 - $640,000
Dividend paid to Common Stockholders = $260,000

Dividend per share paid to Common Stockholders = Dividend paid to Common Stockholders / Number of Common Shares
Dividend per share paid to Common Stockholders = $260,000 / 140,000
Dividend per share paid to Common Stockholders = $1.86