Question

A company has $50{,}000$ preferred shares with dividend $20\%$ and $20{,}000$ common shares; par value of each share is ₹ 10. The total profit is $₹ 1{,}80{,}000$, of which $₹ 30{,}000$ is kept in reserve and the rest distributed to shareholders. Find the dividend percent paid to common shareholders.

• A. $20\%$
• B. $24\%$
• C. $25\%$
• D. $30\%$

Hint:

Preferred dividends are paid at the stated rate on face value before common shareholders participate. Always subtract reserves first to get the distributable pool.

Answer 1

The Correct Option is C

Step 1: Compute distributable profit.
Total profit $=₹ 1{,}80{,}000$, reserve $=₹ 30{,}000$
$\Rightarrow$ Distributable profit $=₹(1{,}80{,}000-30{,}000)=₹ 1{,}50{,}000$. 

Step 2: Pay preferred dividend first.
Preferred dividend rate $=20\%$ on par ₹ 10 $\Rightarrow$ ₹ 2 per preferred share.
Total preferred dividend $=50{,}000\times ₹ 2=₹ 1{,}00{,}000$. 

Step 3: Amount left for common shareholders.
Left for common $=₹(1{,}50{,}000-1{,}00{,}000)=₹ 50{,}000$. 

Step 4: Dividend per common share and percent.
Common shares $=20{,}000$ $\Rightarrow$ dividend per common share $=\dfrac{₹ 50{,}000}{20{,}000}=₹ 2.50$.
Percent on par ₹ 10 $=\dfrac{2.50}{10}\times 100=25\%$.
\[ \boxed{25\%} \]