Assume that preferred stock is noncumulative and calculate total dividends paid out to each class of shareholders for each of Years 1, 2, 3, and 4 and the years combined.

1b. Assume that preferred stock is cumulative and calculate total dividends paid out to each class of shareholders for each of Years 1, 2, 3, and 4 and the years combined.

1c. Would potential investors favor noncumulative or cumulative preferred stock assuming they were priced the same?

2. If Adita wanted to attract more investors to its preferred stock, which of the following features should it add?

3. Why might Adita want to issue preferred stock instead of common stock?

4. Why might an investor prefer Aditas preferred stock over its common stock?

Cash Dividends Distributed by Year Number of Shares $400,000 $350,000 Preferred Stock $300,000 $250,000 Common Stock $200,000 $150,000 Preferred Stock Dividend Rate $100,000 6% Preferred Stock Par Value Per Share $50,000 $0.01 Common Stock $0 $20.00 Preferred Stock Year 4 Year 1 Year 2 Year 3 Common Stock Share Price $25 $20 $15 $10 $5 $0 Year 1 Year 3 Year 2 Year 4 Cash Dividends Distributed by Year Number of Shares $400,000 $350,000 Preferred Stock $300,000 $250,000 Common Stock $200,000 $150,000 Preferred Stock Dividend Rate $100,000 6% Preferred Stock Par Value Per Share $50,000 $0.01 Common Stock $0 $20.00 Preferred Stock Year 4 Year 1 Year 2 Year 3 Common Stock Share Price $25 $20 $15 $10 $5 $0 Year 1 Year 3 Year 2 Year 4