Question

Dividends on Preferred and Common Stock

Yukon Bike Corp. manufactures mountain bikes and distributes them through retail outlets in Canada, Montana, Idaho, Oregon, and Washington. Yukon Bike Corp. declared the following annual dividends over a six-year period ending December 31 of each year: Year 1, $36,000; Year 2, $45,000; Year 3, $72,000; Year 4, $207,000; Year 5, $261,000; and Year 6, $324,000. During the entire period, the outstanding stock of the company was composed of 30,000 shares of 3% preferred stock, $100 par, and 100,000 shares of common stock, $20 par.

Instructions:

1. Determine the total dividends and the per-share dividends declared on each class of stock for each of the six years. If required, round your answers to the nearest cent. If the amount is zero, please enter "0".

						Preferred Dividends									Common Dividends
Year	Total Dividends					Total						Per Share			Total						Per Share
Year 1		$   36,000		$			$						$			$
Year 2		45,000
Year 3		72,000
Year 4		207,000
Year 5		261,000
Year 6		324,000
							$									$

2. Calculate the average annual dividend per share for each class of stock for the six-year period. If required, round your answers to the nearest cent.

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

3. Assuming a market price per share of $132 for the preferred stock and $26 for the common stock, calculate 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

1) Dividend distribution

Preferred dividend = 30000*100*3% = 90000

		Preferrred		Common
Year	Total dividend	Total	Per share	Total	Per share
Year 1	36000	36000	1.20	0	0
Year 2	45000	45000	1.50	0	0
Year 3	72000	72000	2.40	0	0
Year 4	207000	207000	6.90	0	0
Year 5	261000	90000	3.00	171000	1.71
Year 6	324000	90000	3.00	234000	2.34
Total	945000	540000	18	405000	4.05

2) Average annual dividend per share of preferred = 18/6 = $3 per share

Average annual dividend per share for Common = 4.05/6 = 0.68 per share

3) Preferred stock = 3*100/132 = 2.27%

Common Stock = 0.68*100/26 = 2.62%