Description
Flaming Lip Corporation has 25,000 shares outstanding of 12% $15 par value, cumulative preferred stock. In 2009 and 2010, no dividends were declared on preferred stock. In 2011, Flaming Lip had a profitable year and decided to pay dividends to stockholders of both preferred and common stock.
If Flaming Lip has $200,000 available for dividends in 2011, how much could it pay to the preferred and common stockholders?
Explanation & Answer
Annual Preferred Dividend=25000 shares*15=$375000*6%=$22,500
Preferred Dividend for 2009,2010 and 2011=$22500+$22,500+$22,500=$67,500
Common Dividend for 2009 and 2010 will be Zero.
Common Dividend for 2011 will be=$200,000-$67,500=$132500
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