Question

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, $40,000; Year 2, $80,000; Year 3, $180,000; Year 4, $220,000; Year 5, $290,000; and Year 6, $360,000. During the entire period ended December 31 of each year, the outstanding stock of the company was composed of 25,000 shares of cumulative preferred 4% 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 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		$   40,000				$				$				$				$
Year 2		80,000
Year 3		180,000
Year 4		220,000
Year 5		290,000
Year 6		360,000
										$								$

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 $205 for the preferred stock and $20 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

		Preferrence Shares		Common Dividend
Year	Total Dividend	Total	Per Share	Total	Per Share
1	40000	40000	1.6	0	0
2	80000	80000	3.2	0	0
3	180000	180000	7.2	0	0
4	220000	100000	4	120000	1.2
5	290000	100000	4	190000	1.9
6	360000	100000	4	260000	2.6
			24		5.7
Preference Shares =100*4% = 4 per share
No of Preference Shares = 25000
Working for preference shares
Year	Dividend	Paid	Balance
1	100000	40000	60000
2	100000	80000	80000
3	100000	180000	0
4	100000	100000	0
5	100000	100000	0
6	100000	100000	0
2
Average Annual Dividend of Preference shares = 24/6 = 4
Average Annual Dividend of Common shares = 5.7 / 6 = 0.95
3
Average Annual % of Preference shares = 4/205*100 = 1.95%					1.95122
Average Annual % of Common shares = 0.95/20*100 = 4.75%