Rudd Company and Clay Company have extremely stable net income amounts of USD 4,800,000 and USD 3,200,000, respectively. Both companies distribute all their net income as dividends each year. Rudd Company has100,000 shares of USD 80 par value, 6 percent preferred stock, and 500,000 shares of USD 8 par value common stock outstanding. Clay Company has 50,000 shares of USD 40 par value, 8 percent preferred stock, and 400,000 shares of USD 8 par value common stock outstanding. Both preferred stocks are cumulative.
a. Compute the annual dividend per share of preferred stock and per share of common stock for each company.
b. Based solely on the preceding information, which common stock would youpredict to have the higher market price per share? Why?
c. Which company”s stock would you buy? Why?