Dividends You have been considering buying some common shares of Basler Freight. Basler has 500,000 shares of common stock outstanding. The company has been through difficult times, but now is doing better. Your main concern is whether you will receive cash dividends. In addition to the common shares, the company has 10,000 shares of 10 percent, $10-par Class A preferred stock outstanding, which is noncumulative and nonparticipating. The company also has 25,000 shares of 6 percent, $100-par Class B preferred stock outstanding. This stock is nonparticipating, but is cumulative. The normal dividend has been paid on both classes of stock until last year, when no dividends were paid.

This year, however, Basler is doing exceptionally well and is expecting net income of $1,800,000. The company has not yet declared its annual dividends but has indicated that it plans to pay total dividends equal to 40 percent of net income. If you immediately buy 1,000 shares of Basler common stock in the stock market:

a. What amount of common dividend would you expect to receive?

b. What amount of common dividend would you expect to receive if the Class B preferred stock were noncumulative?