Rob Lowe would like to invest $100,000 in Franklin Inc., which is offering common stock, preferred stock, and bonds on the open market. The common stock has paid $1 per share in dividends for the past three years, and the company expects to be able to double the dividend in the current year. The current market price of the common stock is $10 per share. The preferred stock has an 8% dividend rate. The bonds are selling at par with a 5% stated rate. Required 1. Explain Franklin’s obligation to pay dividends or interest on each instrument. 2. Recommend one type of investment over the others to Rob and justify your reason. Problem 11-3A Dividends for Preferred and Common Stock The Stockholders’ Equity category of Rausch Company’s balance sheet as of December 31, 2010, appeared as follows: Preferred stock, $100 par, 8%, 2,000 shares issued and outstanding $ 200,000 Common stock, $10 par, 40,000 shares issued and outstanding 400,000 Additional paid-in capital 500,000 Total contributed capital $1,100,000 Retained earnings 900,000 Total stockholders’ equity $2,000,000 The notes to the fi nancial statements indicate that dividends were not declared or paid for 2008 or 2009. Rausch wants to declare a dividend of $118,000 for 2010. Required Determine the total and the per-share amounts that should be declared to the preferred and common stockholders under the following assumptions: 1. The preferred stock is noncumulative, nonparticipating. 2. The preferred stock is cumulative, nonparticipating.