Nu-Tek has preferred stock outstanding that pays a cumulative $1.50 dividend per quarter. This company has not paid any of its dividends for the past two quarters. How much must be paid as a dividend for each share of preferred stock if the company plans to pay a dividend to its common shareholders this upcoming quarter?

$4.50 per preferred stock

Explanation:

total preferred stock payment = $1.50 per quarter

since the preferred stocks are cumulative, that means that any past due payment must be honored before any dividends are distributed to common stockholders.

total preferred dividends owed = 2 quarters x $1.50 per quarter = $3 + $1.50 for the next quarter = $4.50 per preferred stock

Hi, your question has missing information relating to the number of Preference Stocks and cash available for dividends.

However important steps to answer this are provided as follows :

It is important to note that the preference stocks are cumulative, meaning that  any dividends in arrears are paid in the future when cash becomes available (hence they are not waived)

Another thing is to remember that preference stock dividends have a preferential right over common stock dividends, meaning, they have to be paid first before the the common stock dividends are paid.

If the Company plans to pay the dividends to common shareholders the following must happen.

1. First payoff of Preference Stock dividends in arrears in the previous year. (Number of Stocks × Payout Ratio of $1.50)

2.Payoff Preference Stock dividends due to Preference stockholders in the current quarter  (Number of Stocks × Payout Ratio of $1.50)

3. Remainder of cash balance after payment of 1 and 2 above can then be distributed to common shareholders as dividends.

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