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A company has issued 10000 preferred shares and 50000 common shares both of par value $ 100 each. The dividend on a preferred share and a common share is 12% and 17.6%, respectively. The company had a total profit of $ 15 Millions, out of which some amount was kept in reserve fund and the remaining distributed as dividend. Find out the amount kept in reserve fund.
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- $ 5 Million
- $ 6 Million
- $ 6.5 Million
- $ 5.5 Million
Correct Option: A
Given that :- Face value of each share = $ 100
Number of preferred shares = 10000
Total number of preferred shares = Number of preferred shares x Face value of each share
= 10000 x 100 = 1000000
Number of common shares = 50000
Total number of common shares = Number of common shares x Face value of each share
= 50000 x 100 = 5000000
Total profit = $ 15 Millions
∴ Dividend on 1000000 preferred share
= 12% of $ 1000000
| = $ |  | x 1000000 |  | = $ 120000 | 100 |
Dividend on 5000000 common shares = 17.6% of $ 5000000
| = $ | | x 5000000 | | = $ 880000 | 100 |
∴ Total dividend paid = Dividend on preferred shares + Dividend on common shares
= $ (120000 + 880000)
= $ 1000000 = $ 10 Million
∴ Amount kept in reserve fund = Total profit - Total dividend paid
= $ 15 Million - 10 Million= $ 5 Million.
