Question

Bridger Bike Corp. manufactures mountain bikes and distributes them through retail outlets in Montana, Idaho, Oregon and Washington. Bridger Bike Corp. has declared the following annual dividends over a six-year period ending December 31 of each year: 2014, $5,000; 2015, $18,000; 2016, $45,000; 2017, $45,000; 2018, $60,000; and 2019, $67,000. During the entire period, the outstanding stock of the company was composed of 10,000 shares of 2% cumulative preferred stock, $100 par and 25,000 shares of common stock, $1 par.

Instructions:

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 on January 1, 2005. Summarize the data in tabular form using the below table.

2. Determine the average annual dividend per share for each class of stock for the six-year period.

3. Assuming a market price of $125 for the preferred stock and $8 for the common stock, calculate the average annual percentage return on initial shareholder’s investment, based on the average annual dividend per share (a) for preferred stock and (b) for common stock.

Answer 1