Question

Dividends on Preferred and Common Stock Pecan Theatre Inc. owns and operates movie theaters throughout Florida...

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, $64,000; Year 3, $144,000; Year 4, $176,000; Year 5, $224,000; and Year 6, $288,000. During the entire period ended December 31 of each year, the outstanding stock of the company was composed of 40,000 shares of cumulative preferred 2% stock, $100 par, and 100,000 shares of common stock, $10 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 64,000
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 $108 for the preferred stock and $16 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 %

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Homework Answers

Answer #1

1. Determine the total dividends and the per-share dividends declared on each class of stock for each of the six years.

Annual preferred dividend = 40000*100*2% = 80000

Total dividend Preferred dividend Dividend per share Common Dividend Dividend per share
Year 1 32000 32000 0.80 0 0
Year 2 64000 64000 1.60 0 0
Year 3 144000 144000 3.60 0 0
Year 4 176000 80000 2.00 96000 0.96
Year 5 224000 80000 2 144000 1.44
Year 6 288000 80000 2 208000 2.08
Total 928000 480000 12 448000 4.48

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

Average annual common Dividend = 4.48/6 = 0.75 per share

Dividend yield

Preferred stock = 2/108 = 1.85%

Common Stock = 0.75/16 = 4.7%

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