One of your clients has some stock he needs to distribute dividends to. However, the dividends for last year were never distributed. The total amount of dividends to be distributed is $120,000. It is to be distributed to 55,000 preferred shares at a fixed dividend of $1 per share. Your client wants to know how many dollars are distributed to preferred shareholders? How much per share is distributed to 20,000 common shareholders?
Dec 27th 2008, 10:19 AM
You know from the question that all preferred shares pay out a fixed dividend of $1, so the number of preferred shares available is also the number of dollars you need to pay out to the preferred shareholders: $55,000.
After paying out that amount, you have $120,000 - $55,000 left over. Divide that by the number of common shareholders (20,000) and that's the dividend per share for the common stock.