You are considering purchasing the preferred stock of a firm but you’re also concerned about its capacity to pay the dividend.
To help you feel more confident, you compute the times-preferred-dividend-earned ratio for the last three years from the following data taken from the firm’s financial statements.
Year
20×1
20×2
20×3
Operating Income
$12,000,000
$15,000,000
$17,000,000
Interest
3,000,000
5,900,000
11,000,000
Taxes
4,000,000
5,400,000
4,000,000
Preferred Dividends
1,000,000
1,000,000
1,500,000
Common Dividends
3,000,000
2,000,000
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Get Help Now!What does your analysis indicate about the firm’s capacity to pay preferred stock dividends? Hint…this will require you to compute net earnings…
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