A Firm Has an Outstanding Issue of 1,000 Shares of Preferred

Multiple Choice

A firm has an outstanding issue of 1,000 shares of preferred stock with a $100 par value and an 8 percent annual dividend. The firm also has 5,000 shares of common stock outstanding. If the stock is cumulative and the board of directors has passed the preferred dividend for the prior two years, how much must the preferred stockholders be paid prior to paying dividends to common stockholders at the end of third year?

A) $8,000
B) $16,000
C) $24,000
D) $25,000