Textbook Problem

Dividends Andrews Company has $80,000 available to pay dividends. It has 2,000 shares of 10%, $100 par, preferred stock and 30,000 shares of $10 par common stock outstanding. The preferred stock is selling for $125 per share, and the common stock is selling for $20 per share.

Required:

1. 1. Next Level Determine the amount of dividends to be paid to each class of shareholder for each of the following independent assumptions:
   1. a. Preferred stock is nonparticipating and noncumulative.
   2. b. Preferred stock is nonparticipating and cumulative. Preferred dividends are 2 years in arrears at the beginning of the year.
   3. c. Preferred stock is fully participating and cumulative. Preferred dividends are 1 year in arrears at the beginning of the year.
2. 2. For 1(a), compute the dividend yield on the preferred stock and the common stock.