Question

A firm has 50 million common shares outstanding, on which it pays a quarterly dividend of $0.25 per share. The firm’ s capital structure also includes two million cumulative preferred shares with a $50 par value that yield 8 percent per year (or 2 percent per quarter). After making some bad loans in the sub‐prime mortgage market, the firm suffered a big loss and suspended its dividend payments on all forms of equity. Six months later, the company is once again in the black having earned $7 million (after tax), which it intends to pay as dividends. How much will the common shareholders receive per share

Answer 1

First six months accrued dividend would be paid to preferred shareholders and then remaining dividend would be paid to common shareholders
Dividend to preferred shareholders	(2000000*50*4%)
Dividend to preferred shareholders	$4,000,000
Balance dividend available for common shareholders	7000000-4000000
Balance dividend available for common shareholders	$3,000,000
No of common shares outstanding	50,000,000
Dividend per share	$0.06
Thus, common shareholders would receive dividend of $0.06 per share