Mary Dvorak organized Mullin Enterprises, Inc., in January 2019. The corporation immediately issued at $12 per share on half of its 300,000 authorized shares of $1 par value common stock. On January 2, 2020, the corporation sold at par value the entire 6,000 authorized shares of 7 percent, $30 par value cumulative preferred stock. On January 2, 2021, the company again needed capital and issued 3,500 shares of an authorized 12,000 shares of no-par cumulative preferred stock for a total of $455,000. The no-par shares have a stated dividend of $10 per share.

The company declared no dividends in 2019 and 2020. At the end of 2020, its retained earnings were $275,000. During 2021 and 2022 combined, the company earned a total net income of $920,000. Dividends of 80 cents per share in 2021 and $1.15 per share in 2022 were paid on common stock.

2. Assume that on January 2, 2020, the corporation could have borrowed $180,000 at 10 percent interest on a long-term basis instead of issuing the 6,000 shares of the $30 par value cumulative preferred stock. Identify two reasons a corporation may choose to issue cumulative preferred stock rather than finance operations with long-term debt.

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