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, $30,000; Year 2, $37,500; Year 3, $60,000; Year 4, $165,000; Year 5, $210,000; and Year 6, $263,000. During the entire period, the outstanding stock of the company was composed of 25,000 shares of 3% preferred stock, $100 par, and 100,000 shares of common stock, $25 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

$   30,000

$______

$ ___________

$_______

$__________

Year 2

37,500

$______

$____________

$_______

$__________

Year 3

60,000

$______

$____________

$_______

$___________

Year 4

165,000

$______

$____________

$_______

$___________

Year 5

210,000

$______

$____________

$_______

$___________

Year 6

263,000

$______

$____________

$_______

$___________

$____________

$___________

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 $118 for the preferred stock and $31 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

Solution:

Annual preferred dividend = 25000*$100 *3% = $75,000

	Preferred Dividends			Common Dividends
Year	Total Dividends	Total	Per Share	Total	Per Share
Year 1	$30,000.00	$30,000.00	$1.20	$0.00	$0.00
Year 2	$37,500.00	$37,500.00	$1.50	$0.00	$0.00
Year 3	$60,000.00	$60,000.00	$2.40	$0.00	$0.00
Year 4	$165,000.00	$75,000.00	$3.00	$90,000.00	$0.90
Year 5	$210,000.00	$75,000.00	$3.00	$135,000.00	$1.35
Year 6	$263,000.00	$75,000.00	$3.00	$188,000.00	$1.88
Total		$352,500.00		$413,000.00

Solution 2:

Average annual dividend for preferred = (Total preferred Dividend / 6) / 25000 = $2.35 per share

Average annual dividend for Common = (Total Common Dividend / 6) / 100000 = $0.69 per share

Solution 3:

Average annual percentage return Preferred Stock = $2.35 / $118 = 2.77%

Average annual percentage return Common Stock = $0.69 / $31 = 2.23%