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The shareholders’ equity of MLS Enterprises includes $200 million of no par common stock and $400 million of 6% cumulative preferred stock. The board of directors of MLS declared cash dividends of $50 million in 2021 after paying $20 million cash dividends in both 2020 and 2019. What is the amount of dividends common shareholders will receive in 2021? (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

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letmeanswer

Solution and Explanation:

Calculating the annual preferred dividend

                                                                   ($ in million)

                                   Par value              Dividend rate       Annual

                                      preferred stock                preferred dividend

Annual preferred dividend     $300          6 percent         $18

Calcuate the amount of dividend to common shareholders will receive in the year

                                                ($ in million)

Total cash      Paid to preferred   Paid to common      Dividend in

     dividend paid                                            arrears at year end  

2014 $14                $14                                0                   $4  

2015 $14                  $14                                0                  $8    

2016 $41                  $26 ($8 plus $18)       $15 ($41 minus $26) Nil  

Total $69                   $54                         $15                        $8  

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