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ACCOUNTING AND FINANCIAL ENGINEERING - EXAMPLE 34.34 : A biochemical engineering company has stock P = 20,000 shares of M % preferred stock of Q = $100 par and N number of shares of $20 par common stock. In year 1 : $10,000 is distributed as dividend. In year 2 : $25,000 is distributed as dividend. Let (Total Dividend) = (Dividend for Preferred Stock) + (Dividend for Common Stock). (a) In year 1, calculate the amount distributed as dividend for preferred stock, when no dividend was distributed for common stock. (b) In year 2, the amount distributed for common stock was $5000. Find the values of M and N, when the dividend per share for common stock is $0.05.
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Answer Posted / kangchuentat
ACCOUNTING AND FINANCIAL ENGINEERING - ANSWER 34.34 : (a) (Dividend for Preferred Stock) = (Total Dividend) - (Dividend for Common Stock) = $10,000 - 0 = $10,000. (b) N = (Dividend for Common Stock) / (Dividend Per Share for Common Stock) = ($5000) / ($0.05) = 100,000. (Dividend for Preferred Stock) = (Total Dividend) - (Dividend for Common Stock) = $25,000 - $5,000 = $20,000 = PQ (M / 100). Then M = (20,000)(100) / PQ = (2,000,000) / [ (20,000)(100) ] = 1. Finally M = 1, N = 100,000. The answer is given by Kang Chuen Tat; PO Box 6263, Dandenong, Victoria VIC 3175, Australia; SMS +61405421706; chuentat@hotmail.com; http://kangchuentat.wordpress.com.
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