Question

Acura Labs Inc. has an outstanding issue of preferred stock with a par value of ​$70 and an 16​% annual dividend. a. What is the annual dollar​ dividend? If it is paid​ quarterly, how much will be paid each​ quarter? b. If the preferred stock is noncumulative and the board of directors has passed the preferred dividend for the last 2 ​quarters, how much must be paid to preferred stockholders in the current quarter before dividends are paid to common​ stockholders? c. If the preferred stock is cumulative and the board of directors has passed the preferred dividend for the last 2 ​quarters, how much must be paid to preferred stockholders in the current quarter before dividends are paid to common​ stockholders?

Answer 1

a) annual $11.2 per quarter $2.8

b) if it is noncumulative then, the company will pay whatever is possible on each quarter up to the maximum of 2.80 dollar per quarter as there are no dividends in arrears

c) if cummulative then, the company wll pay the 2.8 of the last two quarter plus the dividends of the current quarter:

2.80 x 3 = $ 8.40

To clean the arrears with the preferred stock and only then, the company can pay common stockholders.

Step-by-step explanation:

a) 70 share par value x 16% return = $11.2

If quarterly then: $11.2 / 4 = $2.8

c) if cummulative then, the company wll pay the 2.8 of the last two quarter plus the dividends of the current quarter:

2.80 x 3 = $ 8.40

To clean the arrears with the preferred stock and only then, the company can pay common stockholders.

Answer 2

a. What is the annual dollar​ dividend? If it is paid​ quarterly, how much will be paid each​ quarter?

To calculate the annual divident, we will simply multiply the par valye of the preferred stock to the annual percentage divident amount.

Here,

par value of referred stock = $70

annual dividend = 16%

Annual Divident amount is = $70 * 16% = $11.20

If divident is paid quarterly then,

= $11.20/4 = $2.80

b. If the preferred stock is noncumulative and the board of directors has passed the preferred dividend for the last 2 ​quarters, how much must be paid to preferred stockholders in the current quarter before dividends are paid to common​ stockholders?

Since the preffered is noncumulative, meaning passed (unpaid) dividends do not accumulate. The amount paid to preferred stickholders in the current quarter would be the same as the payment for previous quarters which is $2.80

c. If the preferred stock is cumulative and the board of directors has passed the preferred dividend for the last 2 ​quarters, how much must be paid to preferred stockholders in the current quarter before dividends are paid to common​ stockholders?

If the preferred stock is cummulative then all passed (unpaid) dividends in arrears, along with the current dividend, must be paid before dividends can be paid to common stockholders.

Unpaid 2 quarters = $ 2.80 * 2 = $5.6

Current quarter = $2.80

$5.60 + $2.80 = $8.40

$8.40 must be paid to preferred stockholders in the current quarter before dividends are paid to common​ stockholders.