Teacher gave a Hypothetical question today (one posted) and I could not grasp ho

Question

Teacher gave a Hypothetical question today (one posted) and I could not grasp how she got any of the answers.

Wonderful Outboard Watercraft (WOW) Inc. wants to expand to Blanton, Florida and needs cash. Therefore WOW owners are considering offering 30,000 shares of 1% preferred stock of $100 par on the market Currently the existing stockholders hold 100,000 shares of $50 par common stock. You are (still) their Chief Financial Officer and they ask you to prepare a schedule of what dividends the common and the (new) preferred stockholders would get if WOW sells these proposed preferred shares. You have estimated Income for Yr 1, 2, and 3 and determined that the following amounts could be distributed as dividends:

Year 1: $ 50,000
Year 2: 90,000
Year 3: 130,000

1. Determine the dividends per share for preferred and common stock for each year.
2. Prepare a brief memo (no more than 120 words) giving the arguments for and against offering this preferred stock. In the memo also briefly mention other methods of obtaining the cash.

Explanation / Answer

Prefered

Remaining Amount

Years

Incomes

Dividend

Common Stockholders

Year 1

50000

30000

20000

Year 2

90000

30000

60000

Year 3

130000

30000

100000

Totala

Dividend per

Total Dividend for

Dividend per

Years

Preference Dividend

Prefered Share

Common Stock

Common Stock

Year 1

30000

$1

20000

$0.20

Year 2

30000

$1

60000

$0.60

Year 3

30000

$1

100000

$1

Prefered Stock 30000 Each one 100 Total Value 3000000 Dividend % 1% Dividend yearly Amount (3000000*1%) 30000

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