Fritz Corporation has 800,000 shares of preferred stock and 1,800,000 shares of

Question

Fritz Corporation has 800,000 shares of preferred stock and 1,800,000 shares of common stock. The cumulative preferred stock has a stated dividend of $1.75 per share. Under normal conditions, Kreisler pays out preferred dividends and 30% of remaining earnings to common stockholders; however, because of a severe recession, Fritz retained all earnings last year. This year, Fritz earned net income of $5 million. Calculate the dividend per share to be received by the common stockholders this year. (Show your work)

Explanation / Answer

Since the preferred stock members get seniority, they get the dividends first, even those that are missed.

800,000* 2.5 *2 = 4,000,000 The amount that the preferred stock holders get for this year and last.

$2,400,000= 6.4 mill-4 mill the amount left over after preferred stockholders are paid.

2,400,000 * 30%= 720,000 the amount the common stockholders get

$720,000/ 1,800,000 shares= $0.40 per share

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