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Chapter 5: 1BP-b (page 566)

Folic Acid Inc. has \(20 million in earnings, pays \)2.75 million in interest to bondholders, and pays $1.80 million in dividends to preferred stockholders.

b. What are the common stockholders鈥� legal, enforceable claims to dividends?

Short Answer

Expert verified

The common shareholders do not have the right to demand dividends from the company.

Step by step solution

01

Meaning of the dividend on shares

The dividend refers to the reward given by the company to the shareholders for the money invested by them.These dividends can be paid as cash or additional shares to the shareholders.

02

The common stockholder’s claims to dividend

The common stockholders do not have any claim on the company鈥檚 residual income.These stockholders cannot legally enforce the company to provide them a dividend. It is the company鈥檚 decision whether they want to give dividend to the common shareholders or not.

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