Question

Terri’s Tires has issued 20,000 shares of cumulative preferred stock that will earn dividends at $0.86 per share; it has also issued 12,000 shares of common stock. $120,000 is available for dividends. How much will each share of common stock earn?

Answer 1

Dividend payed to preferred share holders = $0.86(20,000) = $17,200

Amount of dividend left for common shareholders = $120,000 - $17,200 = $102,800

Number of common shares = 12,000.

Therefore, dividend received per share of common stock = $102,800 / 12,000 = $8.57