Question

On May 25, 15, the board of directors of Peterson Manufacturing voted to distribute $2,940,000 to the firm's stockholders. If the firm has issued 75,000 shares of 5% preferred stock with a par value of $10 and 2,000,000 shares of common stock outstanding, calculate the following. (Round all answers to the nearest cent.)

Dividend per share preferred stock =
a) $1.00
b) $2.00
c) $3.92
d) $4.92

Answer 1

The calculation of dividend per share for preferred stock reveals a discrepancy. The expected dividend per share at a 5% rate for a $10 par value would be $0.50, but the dividend calculation with the given total distribution amount results in $39.20 per share, which is not among the provided options.

Step-by-step explanation:

The question involves calculating the dividend per share for preferred stock in a company with a fixed dividend rate. Peterson Manufacturing is deciding on the distribution of dividends and the preference must be given to preferred shareholders before common shareholders receive any distribution.

In this case, the company has 75,000 shares of 5% preferred stock with a par value of $10. This means that each preferred share is entitled to an annual dividend of 5% of $10, which equals $0.50 per share. Assuming all dividends go to preferred shareholders first, and since the total amount for distribution is $2,940,000, we calculate the dividend per share by dividing the total amount by the number of preferred shares.

Dividend per share for preferred stock = Total amount to distribute / Number of preferred shares = $2,940,000 / 75,000 = $39.20 per share, which is not an option provided in the question. It seems there is a mistake, as the expected 5% dividend would be $0.50 per share, not any of the higher values listed.