Series 7 practice questionmediumEquity Securities — Preferred Stock — Cumulative
A company has $4 cumulative preferred stock outstanding and has not paid dividends for 2 years. Before common stockholders can receive any dividend, the company must pay preferred shareholders:
- A$4 per share
- B$8 per share
- C$16 per share
- D$12 per share✓ Correct answer
Explanation
Why D — $12 per share
Cumulative preferred stock requires that all unpaid (accumulated) dividends must be paid before any dividends can be paid to common stockholders. The arrearage is $4 x 2 years = $8, plus the current year's $4 dividend, totaling $12 per share that must be paid before common stockholders receive anything.
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