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Problem 14-04

You are considering purchasing the preferred stock of a firm but are concerned about its capacity to pay the dividend. To help allay that fear, you compute the times-preferred-dividend-earned ratio for the past three years from the following data taken from the firms financial statements:

Year		20X1		20X2		20X3
Operating income	$	18,000,000	$	20,000,000	$	17,000,000
Interest		5,000,000		9,500,000		8,400,000
Taxes		4,900,000		6,000,000		5,600,000
Preferred dividends		1,500,000		1,400,000		1,300,000
Common dividends		3,100,000		2,500,000

Round your answers to two decimal places.

20X1:

20X2:

20X3:

What does your analysis indicate about the firms capacity to pay preferred stock dividends?

Times preferred dividend earned has -Select-declinedincreasedItem 4 each year, which indicates the firm's capacity to pay the dividend has -Select-diminishedimprovedItem 5 .