A company issues 100,000 shares of preferred stock for $40 a share. The stock has a fixed annual dividend rate of 5% and a par value of $3 per share. Preferred stockholders can anticipate receiving a dividend of:
A) $200,000 each year.
B) $15,000 each year.
C) 5% of net income each year.
D) 5% of the market value of the stock at the time the dividend is declared.

Question

Quizplus · Accepted Answer

The total amount raised by issuing 100,000 shares of preferred stock would be $4,000,000 (100,000 shares x $40 per share). The annual dividend rate is 5%, which means that each share of preferred stock will receive a dividend of $0.15 (5% of $3). Therefore, the total dividend paid to all preferred stockholders would be $15,000 (100,000 shares x $0.15 dividend per share).

A Company Issues 100,000 Shares of Preferred Stock for $40