Question

1. Dividends on Preferred and Common Stock

   Pecan Theatre Inc. owns and operates movie theaters throughout Florida and Georgia. Pecan Theatre has declared the following annual dividends over a six-year period: Year 1, $32,000; Year 2, $96,000; Year 3, $144,000; Year 4, $176,000; Year 5, $224,000; and Year 6, $288,000. During the entire period ending December 31 of each year, the outstanding stock of the company was composed of 20,000 shares of cumulative, 4% preferred stock, $100 par, and 100,000 shares of common stock, $20 par.

   Required:

   1. Determine the total dividends and the per-share dividends declared on each class of stock for each of the six years. There were no dividends in arrears at the beginning of Year 1. Summarize the data in tabular form. If required, round your answers to two decimal places. If the amount is zero, please enter "0".

   						Preferred Dividends								Common Dividends
   Year		Total Dividends				Total				Per Share				Total				Per Share
   Year 1		$   32,000				$				$				$				$
   Year 2		96,000
   Year 3		144,000
   Year 4		176,000
   Year 5		224,000
   Year 6		288,000
   										$								$

   2. Determine the average annual dividend per share for each class of stock for the six-year period. If required, round your answers to two decimal places.

   Average annual dividend for preferred	$ per share
   Average annual dividend for common	$ per share

   3. Assuming a market price per share of $333 for the preferred stock and $26 for the common stock, determine the average annual percentage return on initial shareholders' investment, based on the average annual dividend per share for preferred stock and for common stock.

   Round your answers to two decimal places.

   Preferred stock	%
   Common stock	%

Answer 1

Solution 1:

		Preferred Dividends			Common Dividends
Year	Total Dividends	Total	Per Share	Total Arrears at year end	Total	Per Share
Year 1	$32,000	$32,000	$1.60	$48,000	$0	$0.00
Year 2	$96,000	$96,000	$4.80	$32,000	$0	$0.00
Year 3	$1,44,000	$1,12,000	$5.60	$0	$32,000	$0.32
Year 4	$1,76,000	$80,000	$4.00	$0	$96,000	$0.96
Year 5	$2,24,000	$80,000	$4.00	$0	$1,44,000	$1.44
Year 6	$2,88,000	$80,000	$4.00	$0	$2,08,000	$2.08
Total		$4,80,000			$4,80,000

Solution 2:

Average annual dividend for preferred = ($480000 / 6 years) / 20000 Preferred shares = $4.00 per share

Average annual dividend for Common = ($480000 / 6 years) / 100000 Common shares = $0.80 per share

Solution 3:

Preferred Stock = Average annual dividend for preferred/ Market price for Preferred stock = $4.00 / $333 = 1.20%

Common Stock = Average annual dividend for Common/ Market price for Common stock = $0.80 / $26 = 3.08%