(c) $1,000,000, $2,500,000, and $5,700,000? (Assume that all of the available earnings are paid in dividends, but nothing more is paid.)

Lost Dutchman Silver Mining Company has 200,000 shares of $7 cumulative preferred stock outstanding, $100 par value. The preferred stock has a participating feature. If dividends on the common stock exceed $1 per share, preferred stockholders receive additional dividends per share equal to one-half of the excess. In other words, if the common stock dividend were $2, preferred stockholders would receive an additional dividend of $0.50. The company has 1 million shares of common stock outstanding. What would dividends per share be on the preferred stock and on the common stock if earnings available for dividends in three successive years were

(a) $1,000,000, $600,000, and $3,000,000?

(b) $2,000,000, $2,400,000, and $4,600,000?

(c) $1,000,000, $2,500,000, and $5,700,000? (Assume that all of the available earnings are paid in dividends, but nothing more is paid.)

SOLUTION

a. Preferred Common

(1) $ 5.00 $ 0.00