Question

Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark Mountain regions. The following disclosure note appeared in the company’s 2024 annual report:

Note 5. Convertible Preferred Stock (in part):
The Company has the following Convertible Preferred Stock outstanding as of September 2024:

Date of issuance: June 17, 2021
Optionally redeemable beginning: June 18, 2023
Par value (gross proceeds): $ 4,200,000
Number of shares: 210,000
Liquidation preference per share: $ 20
Conversion price per share: $ 25.62
Number of common shares in which to be converted: 163,934
Dividend rate: 6.825%
The Preferred Stock is convertible at any time by the holders into a number of shares of Ozark’s common stock equal to the number of preferred shares being converted times a fraction equal to $20 divided by the conversion price. The conversion prices for the Preferred Stock are subject to customary adjustments in the event of stock splits, stock dividends and certain other distributions on the Common Stock. Cumulative dividends for the Preferred Stock are payable in arrears, when, as, and if declared by the Board of Directors, on March 31, June 30, September 30, and December 31 of each year.

The Preferred Stock is optionally redeemable by the Company beginning on various dates, as listed above, at redemption prices equal to 115% of the liquidation preference. The redemption prices decrease 2% annually thereafter until the redemption price equals the liquidation preference, after which date it remains the liquidation preference.

What amount of dividends is paid annually to a preferred shareholder owning 300 shares of the Series A preferred stock?

Answer 1

The preferred shareholder owning 300 shares of Series A preferred stock receives an annual dividend of $409.50, calculated by multiplying the annual dividend rate of 6.825% by the liquidation preference and the number of shares owned.

Step-by-step explanation:

The amount of annual dividends paid to a preferred shareholder who owns 300 shares of Ozark Distributing Company's Series A preferred stock can be calculated using the given dividend rate.

For the Series A preferred stock, the annual dividend rate is 6.825%. With the liquidation preference per share of $20, we can find the annual dividend for one share and then multiply it by the total shares owned.

Annual dividend per share = Liquidation preference per share x Dividend rate

Annual dividend per share = $20 x 0.06825

= $1.365

Total annual dividend for 300 shares = Annual dividend per share x Number of shares

Total annual dividend for 300 shares = $1.365 x 300

= $409.50