This one really had me thinking… I was probably overthinking it…
ABC company has 100,000 shares of preferred stock outstanding. Par value $22, current value $19. ABC company has paid a 10% dividend the past few years to preferred stock holders. ABC company files for bankruptcy & has enough to pay preferred stock holders. How much will ABC company pay preferred stock holders?
A. $2,420,000
B. $2,090,000
C. $2,200,000
D. $1,900,000
Hello @Kellie_Schumm,
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I would think the answer is C. $2,200,000 because in a liquidation event like bankruptcy, preferred shareholders are paid based on par value, not market value. So, 100,000 shares × $22 par = $2,200,000. This assumes there are no cumulative unpaid dividends owed - which the question doesn’t suggest.
Hope this helps!
-Mataia
This was a question from the actual exam. I couldnt remember it word for word… Thank you for your response!