Final answer:
To determine how much can be paid to common stockholders, we must first satisfy any preferred stock dividends. Once preferred dividends are covered, the remaining funds can be distributed as dividends to common stockholders. The amount paid to each common stockholder depends on the number of outstanding common shares.
Step-by-step explanation:
To determine how much Eugene Corporation can pay to common stockholders from the $75,000 available for dividends in 2023, we need additional information regarding the dividend preferences, if any, of preferred stockholders and the number of shares of both preferred and common stock. Generally, preferred stock has a fixed dividend rate, and these dividends must be paid before any dividends can be paid to common stockholders. If the preferred dividends are not fully covered, the company must pay what is owed to preferred stockholders before common shareholders receive anything.
For example, suppose Eugene Corporation has 1,000 shares of preferred stock with a dividend preference of $5 per share. This would mean $5,000 must be paid to preferred shareholders first (1,000 shares × $5/share). Only after this amount has been paid would the remaining $70,000 ($75,000 total available − $5,000 preferred dividends) be available to be distributed among common stockholders.
If no information on preferred dividends is provided, it is assumed that the full $75,000 is available for common stock dividends. To calculate the dividend per share for common stockholders, we would need to know the number of common shares outstanding. Without this information, we cannot determine the exact amount per common share. However, if we assume Eugene Corporation has 10,000 shares of common stock, the dividend per common share would be $7.50 ($75,000 ÷ 10,000 shares).
Investors typically expect a rate of return which can come in the form of dividends or capital gains. Stable companies, such as utility companies and established consumer brands like Coca-Cola, often offer dividends. The example of Babble, Inc., a fictional company, further illustrates how future profits can impact the current price investors are willing to pay for a stock, expecting those profits to be paid out as dividends. In Babble's case, an investor would likely calculate the present value of the dividends ($15 million, $20 million, and $25 million) expected to be received over the next two years and divide it by the number of shares (200) to find the price per share they might be willing to pay today.