Berzett Industrial Products has both common and noncumulative preferred stock ou

Question

Berzett Industrial Products has both common and noncumulative preferred stock outstanding. The dividends on these stocks are $1.10 per quarter per share of common and $3.50 per quarter per share of preferred. The company has not paid any dividends for the past two quarters but is expected to pay dividends on both the common and the preferred stock next quarter. What is the minimum amount the firm must pay per share to its preferred stockholders next quarter if it plans to pay a common dividend?

$0

$1.10

$3.50

$5.00

$7.00

Explanation / Answer

Ans. $3.50

Company will pay $3.50 per preferred stock only beacause of noncumulative nature of preferred stock outstanding. Dividend not paid in the previous quater will not get accumulated because of its nature. Also preffered stockholders enjoy the right of dividend being paid before the dividen is paid to common stockholders.

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