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Problem 14-04

You are considering purchasing the preferred stock of a firm but are concerned about its capacity to pay the dividend.

To help allay that fear, you compute the times-preferred-dividend-earned ratio for the past three years from the following data taken from the firms financial statements:

Year		20X1		20X2		20X3
Operating income	$	16,000,000	$	15,000,000	$	17,000,000
Interest		8,800,000		6,500,000		6,900,000
Taxes		3,500,000		4,700,000		5,300,000
Preferred dividends		1,300,000		1,300,000		1,400,000
Common dividends		1,600,000		2,300,000

Round your answers to two decimal places.

20X1:

20X2:

20X3:

What does your analysis indicate about the firms capacity to pay preferred stock dividends?

Times preferred dividend earned has -Select: -declined or increased each year, which indicates the firm's capacity to pay the dividend has -Select:-diminished or improved