Question

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, $20,000; Year 2, $40,000; Year 3, $124,000; Year 4, $138,000; Year 5, $148,000; and Year 6, $164,000.

During the entire period ended December 31 of each year, the outstanding stock of the company was composed of 25,000 shares of cumulative preferred2% stock, $100 par, and 100,000 shares of common stock, $15 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 arrearsat the beginning of Year 1. Summarize the data in tabular form.

Note: If required, round your answers to two decimal places. If the amount is zero, enter "0".

						Preferred Dividends								Common Dividends
Year		Total Dividends				Total				Per Share				Total				Per Share
Year 1		$   20,000				$				$				$				$
Year 2		40,000
Year 3		124,000
Year 4		138,000
Year 5		148,000
Year 6		164,000
										$								$

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 $145 for the preferred stock and $10 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.

Use the rounded amounts from part 2 in future computations. And round your final answers to two decimal places.

Preferred stock	%
Common stock	%

Answer 1

1) Dividend distribution :

Annual dividend = 25000*100*2% = 50000

		Preferred diviend		Common Dividend
	Total dividend	Total	Per share	Total	Per share
Year 1	20000	20000	20000/25000 = 0.80	0	0
Year 2	40000	40000	40000/25000 = 1.60	0	0
Year 3	124000	90000	90000/25000 = 3.60	34000	0.34
Year 4	138000	50000	2.00	88000	0.88
Year 5	148000	50000	2.00	98000	0.98
Year 6	164000	50000	2.00	114000	1.14
Total			12.00		3.34

2) Average annual dividend for preferred = 12/6 = $2 per share

Average annual dividend for common = 3.34/6 = 0.56 per year

3) Preferred stock = 2/145 = 1.38%

Common stock = 0.56/10 = 5.6%