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 firm's financial statements:

Year		20X1		20X2		20X3
Operating income	$	15,000,000	$	16,000,000	$	19,000,000
Interest		6,200,000		5,700,000		5,500,000
Taxes		5,400,000		5,400,000		6,000,000
Preferred dividends		600,000		800,000		1,200,000
Common dividends		2,600,000		2,100,000

Round your answers to two decimal places.

20X1:

20X2:

20X3:

What does your analysis indicate about the firm's capacity to pay preferred stock dividends?

Times preferred dividend earned has -Select-declinedincreasedItem 4 each year, which indicates the firm's capacity to pay the dividend has -Select-diminishedimprovedItem 5