National Health Corporation NHC has a cumulative preferred s

National Health Corporation (NHC) has a cumulative preferred stock issue outstanding, which has a stated annual dividend of $8 per share. The company has been losing money and has not paid preferred dividends for the last five years. There are 450,000 shares of preferred stock outstanding and 750,000 shares of common stock.

a. How much is the company behind in preferred dividends? (Do not round intermediate calculations. Input your answer in dollars, not millions (e.g. $1,234,000).)
  

b. If NHC earns $18,500,000 in the coming year after taxes but before dividends, and this is all paid out to the preferred stockholders, how much will the company be in arrears (behind in payments)? Keep in mind that the coming year would represent the sixth year. (Do not round intermediate calculations. Input your answer in dollars, not millions (e.g. $1,234,000).)
  

c. Can the firm pay any common stock dividends if the conditions in part b exist?
  

Solution

A: Pending dividend= $8*450000 shares * 5 years

=$ 18,000,000

B: Pending dividend= $8*450000 shares * 6 years - 18,500,000

=$ 3,100,000

C: No

(Since there is still preference dividend pending, the company cannot pay the common stockholders)