If there is a large cash dividend paid in the following year, Roger Hillcrest, who owns 100 shares of $10 par, 5% noncumulative preferred stock, would be entitled to $0 up to for the previous year before common shareholders are paid.
A noncumulative preferred stock is a class of preferred stock that does not accumulate undeclared dividends for previous periods.
The implication is that the preferred stockholder is not entitled to any previous dividend when it was not declared, despite that it is a fixed dividend investment.
Thus, for the previous years when dividends were not declared or paid, Roger Hillcrest is not entitled to any cumulative dividends, but can only receive $50 (100 x $10 x 5%) for the current year.
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