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18 February, 15:29

Colliers, Inc., has 110,000 shares of cumulative preferred stock outstanding. The preferred stock pays dividends in the amount of $2 per share, but because of cash flow problems, the company did not pay any dividends last year. The board of directors plans to pay dividends in the amount of $620,000 this year.

a. What amount will go to preferred stockholders? b. How much of the cash dividends will be available for common stockholders?

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Answers (2)
  1. 18 February, 16:39
    0
    a) Dividends to preferred stockholders = 440,000 USD

    b) Dividends for common stockholders = 180,000 USD

    Explanation:

    Shares of Cumulative preferred Stock outstanding = 110,000 Shares

    a) Amount to preferred stockholders

    Dividend to be paid = No: of shares x amount of dividend per share x Time period in years

    So, we have:

    No: of shares = 110,000 Shares

    Amount of dividend per share = 2 USD

    Time period in years = 2 years

    Let's plug in the values in the formula:

    Dividend to be paid = 110,000 x 2 x2

    Dividend to be paid = 440,000 USD

    440,000 USD amount will go to preferred stockholders.

    b) Cash Dividends for Common Stockholders:

    Cash dividends for common stockholders is just the difference between the number of dividends board of directors planned to pay with the dividends for the preferred stockholders.

    Here's the formula:

    Dividends for common stockholders = Dividends Board of Directors planned to pay - Dividends for preferred stockholders

    So, we have:

    Dividends Board of Directors planned to pay = 620,000 USD

    Dividends for preferred stockholders = 440,000 USD

    Let's plug in the values into the formula:

    Dividends for common stockholders = Dividends Board of Directors planned to pay - Dividends for preferred stockholders

    Dividends for common stockholders = 620,000 USD - 440,000 USD

    Dividends for common stockholders = 180,000 USD

    180,000 USD amount will go to common stockholders.
  2. 18 February, 16:55
    0
    a. The amount that will go to preferred stockholders will be $444,000

    b. The amount of the cash dividends that will be available for common stockholders is $180,000

    Explanation:

    a. In order to calculate the amount that will go to preferred stockholders we would have to use the following formula:

    Total Dividend to be paid = (Number of Shares*Amount of dividend per share) * Number of years

    = (110,000*$2) * 2

    =$220,000*2

    =$444,000



    The amount that will go to preferred stockholders will be $444,000

    b. In order to calculate the amount of the cash dividends that will be available for common stockholders we would have to use the following formula:

    Total Dividend to be paid=Dividend planned to be paid by board-

    Dividend paid to Cumulative preferred stockholders

    =$620,000-$440,000

    =$180,000



    The amount of the cash dividends that will be available for common stockholders is $180,000
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