You have been considering buying some common shares of Sherlock Ltd., which has 1.5 million common shares outstanding. While the company has been through difficult times, it is now doing better and your main concern is whether you will receive cash dividends. In addition to the common shares, the company has 50,000 no par, $8, Class A preferred shares outstanding that are non-cumulative and non-participating. The company also has 10,000, no par, $7.50, Class B preferred shares outstanding. These shares are non-participating but are cumulative. The normal dividend was paid on both classes of preferred shares until last year, when no dividends were paid. This year, however, Sherlock is doing well and is expecting net income of $2.1 million. The company has not yet declared its annual dividends but has indicated that it plans to pay total dividends equal to 35% of net income.
a. If you were to immediately buy 100 shares of Sherlock Ltd., what amount of common dividend would you expect to receive?
b. If you were to immediately buy 100 shares of Sherlock Ltd., what amount of common dividend would you expect to receive if the Class B preferred shares were non- cumulative?