Chapter 8, Problem 8.11E

To determine

Concept Introduction:

Dividend Dividend is the reward given by the company from its residual profit to its shareholders. It can be in the form of cash or otherwise. It is given by the board of directors only after shareholder's approval through their voting rights. It is not mandatory for a company to declare dividends.

Dividends paid to the shareholders holding preferred stock of the company are termed as preferred dividends . This dividend is given preference over other common shares at the time of dividend distribution. In case of dividends remaining unpaid, dividends would be first paid to this class of shareholders whenever they are paid.

In case of cumulative shares if the dividend remains unpaid, that dividend amount is kept on cumulating over the years for which the dividend remains unpaid. In the event of dividend distribution, the cumulative dividend is also paid along with the regular dividend.

Treasury shares are those shares which are bought by the company itself, thereby reducing the number of shares outstanding. These shares do not have voting rights and are not entitled for dividends.

Requirement 1:

To calculate:

Annual cash dividend to be paid on cumulative preferred shares

Answer to Problem 8.11E

Annual cash dividend required to be paid is $13, 50,900

Explanation of Solution

To calculate the annual cash dividends required to be paid, firstly the total number of shares outstanding would be calculated using the following equation:

  $Numberofsharesoutstanding=Sharesissued-Treasurysharesissued$

In the given problem, there are 325000 shares issued and 40600 shares are treasury stock. Thus, the total number of shares outstanding is:

  $Totalnumberofsharesoutstanding=3,25,000-40,600=2,84,400shares$

The annual cash dividend on cumulative preferred shares is calculated by using the following formula:

  $Totalannualdividendrequiredtobepaid=Numberofsharesoutstanding*Annualdividendpershare$

In the given problem, it is given that dividend per share is $4.75 and we have calculated total number of shares outstanding as 2, 84,400 shares. Thus, the amount of cash dividend:

  $\begin{array}{l} \hfill \\ Totalannualdividendsrequiredtobepaid=\$2,84,400shares*\$4.75=\$13,50,900\hfill \end{array}$

Therefore, the annual cash dividend required to be paid is $13, 50,900.

To determine

Concept Introduction:

Dividend Dividend is the reward given by the company from its residual profit to its shareholders. It can be in the form of cash or otherwise. It is given by the board of directors only after shareholder's approval through their voting rights. It is not mandatory for a company to declare dividends.

Dividends paid to the shareholders holding preferred stock of the company are termed as preferred dividends . This dividend is given preference over other common shares at the time of dividend distribution. In case of dividends remaining unpaid, dividends would be first paid to this class of shareholders whenever they are paid.

In case of cumulative shares if the dividend remains unpaid, that dividend amount is kept on cumulating over the years for which the dividend remains unpaid. In the event of dividend distribution, the cumulative dividend is also paid along with the regular dividend.

Requirement 2:

To calculate:

Cash dividend to be paid on 5% cumulative preferred shares

Answer to Problem 8.11E

Cash dividend required to be paid is $1, 71,250

Explanation of Solution

To calculate the annual cash dividend on 5% cumulative preferred shares, firstly we need to calculate Dividend per share using the following formula:

  $Dividendpershare=DividendRate*ParValue$

In the given problem, Dividend rate is given as 5% and Par Value is $50. Therefore, Dividend per share would be:

  $\begin{array}{l} \hfill \\ Dividendpershare=5\%*\$50=\$2.50\hfill \end{array}$

Also, total number of shares outstanding is given as 68,500 shares; annual dividend required to be paid can be calculated as follows:

  $Annualdividend=Numberofsharesoutstanding*Dividendpershare$

  $Thus,Annualdividend=68,500shares*\$2.50=\$1,71,250$

Therefore, the annual cash dividend required to be paid is $1, 71,250.

To determine

Concept Introduction:

Dividend Dividend is the reward given by the company from its residual profit to its shareholders. It can be in the form of cash or otherwise. It is given by the board of directors only after shareholder's approval through their voting rights. It is not mandatory for a company to declare dividends.

Dividends paid to the shareholders holding preferred stock of the company are termed as preferred dividends . This dividend is given preference over other common shares at the time of dividend distribution. In case of dividends remaining unpaid, dividends would be first paid to this class of shareholders whenever they are paid.

In case of cumulative shares if the dividend remains unpaid, that dividend amount is kept on cumulating over the years for which the dividend remains unpaid. In the event of dividend distribution, the cumulative dividend is also paid along with the regular dividend.

Requirement 3:

To calculate:

Annual cash dividend to be paid on 7.4% cumulative preferred shares

Answer to Problem 8.11E

Annual cash dividend required to be paid is $4, 26,240

Explanation of Solution

To calculate the annual cash dividend on 7.4% cumulative preferred shares, firstly we need to calculate Dividend per share using the following formula:

  $Dividendpershare=DividendRate*ParValue$

In the given problem, Dividend rate is given as 7.4% and Par Value is $100. Therefore, Dividend per share would be:

  $Dividendpershare=7.4\%*\$100=\$7.40$

Also, total number of shares outstanding is given as 57,600 shares; annual dividend required to be paid can be calculated as follows:

  $Annualdividend=Numberofsharesoutstanding*Dividendpershare$

  $Thus,Annualdividend=57,600shares*\$7.40=\$4,26,240$

Therefore, the annual cash dividend required to be paid is $4, 26,240.