Question

DLT has cumulative preferred stock outstanding that calls for quarterly dividend payments of $1.50 each. Due to its financial situation, the firm has not paid these preferred dividends for the past three quarters. What amount per share must be paid to the preferred shareholders this quarter if the firm also wants to pay a dividend on its common stock

Answer 1

Answer: $6.00

Explanation:

The company is to pay Preferred shares $1.50 per quarter.

These are cumulative shares which means that if the company misses a dividend payment, that payment is deferred to a time when they can pay them.

The firm has not paid dividends for the past 3 quarters so if they want to pay Common shareholders a dividend, they will have the clear the backlog of dividends owed to Preference holders.

= Dividends for last 3 quarters + Dividend for current quarter

= (1.5 * 3) + 1.5

= $6.00