Question

Gladstone Company issues 200,000 shares of preferred stock for $40 a share. The stock has fixed annual dividend rate of 5% and a par value of $3 per share. If sufficient dividends are declared, preferred stockholders can anticipate receiving dividends of:

Answer 1

Answer: $30,000

Explanation:

Preferred Dividends are paid at a fixed rate based on the par value and the dividend rate.

If there are 200,000 preferred shares, the amount that is to be paid to them in dividends every year would be;

= 200,000 * 5% * 3

= $30,000

This amount will be paid to them if sufficient dividends are declared to cover this amount. If the shares are Cumulative, they will receive this dividend in totality eventually even if it is not the year the dividends are announced in because these kind of shares accrue the dividends.