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jax had 5,000 shares of 8% PV=100 preferred stock If the stock is cumulative and the...

jax had 5,000 shares of 8% PV=100 preferred stock

If the stock is cumulative and the company did not have any money

in 2019 but could pay 95000 in 2020 How much would the preferred stockholders get in 2020?

1.80000

2.15000

3.95000

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Answer #1

Dividend for 2019 Year = 5000 Shares * 100 face value * 8%

Dividend for 2019 Year = $40,000

Dividend for 2020 Year = 5000 Shares * 100 face value * 8%

Dividend for 2020 year = $40,000

As the company does not have any cash balance during year 2019, the dividend on such shares will be outstanding as they are Cumulative Prefference Shares.

In 2020, Comapny has Cash Balance of $95,000 out of which Dividend of year 2019 ie $40,000 shall be paid and then Dividend of year 2020 ie $40,000 will be paid .

Hence the correct answer is $80,000 ($40,000 + $40,000)

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