Question

A corporation's outstanding stock is composed of 20,000 shares of $5 preferred and 100,000 shares of common $25 par. At the end of its first year of operations, a total of $100,000 in dividends is to be distributed. the total amount of the dividends paid on the common stock is $

Answer 1

Also need to know the same on the preferred stock as well.

Answer 2

Preferred stock always get paid first. I cdon't know the terminology in english but you will have your gains after taxes and financial costs, then you will pay preferred and then you will pay common dividends according to what the company decides to retain for future investment. For example, microsoft always retains all of its earnings to reinvest.

Answer 3

so... Preferred: 20,000*5= 100,000 of your total $100,000. Then you have 0 to give in dividends to your common Stock holders.

Answer 4

how can you say 20000*5 will be the dividend.. dividend would be required rate of return on preferred stock or you can say its cost of capital is kp. remaining would be divided among common stock holders.

Answer 5

You are right, according to the text the $5 would be P0, or the price of the share, I didn't read it the right way. Then the excercise is of course lacking the necesary information to be answered correctly, unless the $5 were meant to be the dividends they would get in the first place. Sorry for the mistake, I advise you to read the excercise again, if it is correct, mayan is right.