c) After completing Exercise 5, what is the dollar amount the Common shareholders would receive in Year 1 (from table)? See circle on the printed exercise.

d) After completing Exercise 5, what is the total dollar amount the Preferred shareholders would receive in Year 3 (from table)? See circle on the printed exercise.

Exercise 5: Distributing Dividends When a company has both Common and Preferred shares outstanding, the pot of money declared as a dividend must be allocated between the Common and Preferred shareholders. A designated annual dividend rate is assigned to each Preferred share (expressed as a % or a $ amount). This annual dividend must be paid before any amounts are paid to Common shareholders. In addition, if the Preferred shares also have a cumulative feature attached, the company must pay any unpaid amounts (Dividends in Arrears) from previous years before paying the Common shareholders Review the following completed example Belson Corporation has 10,000 outstanding common shares with a par value of $1 per share. There are 5,000 outstanding cumulative preferred shares with a dividend rate of $5 per share and a par of $100 per share. The Board of Directors declares a total of $40,000 in Year 1 and $20,000 in Year 2 and $70,000 in Year 3 available for dividends. No dividends are in arrears going into Year 1. Determine how much should be paid to each class of stock each year Year 1 25,000 Year 2 20,000 Year 3 Preferred (5,000 shares x $5 per) 25,000 5,000 30,000 40,000 70,000 Dividends in Arrears Total Preferred 20,000 25,000 15,000 40,000 Common (get the remainder) Total 20,000 Balance- Dividends in Arrears 5,000 NOTE: Remember, the preferred dividend rate may be expressed as a % rather than a per share dollar amount. For instance, in the above example the $5 per share rate may instead be expressed as 5% (596 x $100 par-$5 dividend per share). Next, use the chart below to complete the following problem Carter Corporation has 8,000 outstanding common shares with a par value of $1 per share. There are 6,000 outstanding cumulative preferred shares with a dividend rate of $3 per share and a par of $40 per share. The Board of Directors declares a total of $60,000 in Year 1 and $15,000 in Year 2 and $70,000 in Year 3 available for dividends. No dividends are in arrears going into Year 1. Determine how much should be paid to each class of stock each year Year 1 Year 2 Year 3 Preferred (6,000 shares x $3 per) Dividends in Arrears Total Preferred Common (get the remainder) Total Balance- Dividends in Arrears