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Starbucks Dividends to Shareholders

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Starbucks has 325,000 shares of cumulative preferred stock outstanding. The stock is supposed to pay $2.00 in dividends per share each quarter. The company missed the last two quarterly payments on its preferred stock. What is the total amount of dividends it must pay to the preferred shareholders next quarter if it plans to a pay a $1.15 dividend to its common shareholders at that time?

1. $650,000

2. $1,300,000

3. $1,673,750

4. $1,950,000

5. $2,323,750

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Solution Summary

This question and solution relate to the priority of dividend payments for preferred stock over common stock. Starbucks has missed several payments to preferred shareholders and wants to make a dividend payment to common shareholders. The solution outlines the priorities for doing so and makes a recommendation.

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A company must pay its preferred shareholders any dividends due first before it can pay any dividends to common shareholders. Since, in this example, the company wants to issue a $1.15 dividend to common ...

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