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4 July, 08:21

ABC Company has issued 10% cumulative preferred stock. Two years ago, ABC paid a 6% preferred dividend. Last year, ABC paid a 7% preferred dividend. This year, ABC wishes to pay a common dividend. The preferred shareholders must receive:

A. 0%

B. 7%

C. 10%

D. 17%

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Answers (1)
  1. 4 July, 10:30
    0
    Option (d) is correct.

    Explanation:

    Given that,

    Company issued 10% cumulative preferred stock

    As this is a case of cumulative preferred stock, so all of the missed dividend must be paid before the payment of common dividend.

    Therefore,

    Total preferred dividend to be paid:

    = Dividend missed two years ago + Dividend missed last year + Preferred dividend this year

    = (10% - 6%) + (10% - 7%) + 10%

    = 4% + 3% + 10%

    = 17%

    Hence, the preferred shareholders must receive 17%.
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