Question

Yosemite Bike Corp. manufactures mountain bikes and distributes them through retail outlets in California, Oregon, and Washington. Yosemite Bike Corp. has declared the following annual dividends over a six-year period ended December 31 of each year: Year 1, $24,000; Year 2, $10,000; Year 3, $126,000; Year 4, $100,000; Year 5, $125,000; and Year 6, $125,000. During the entire period, the outstanding stock of the company was composed of 25,000 shares of cumulative preferred 2% stock, $90 par, and 100,000 shares of common stock, $4 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 on January 1, Year 1. Summarize the data in tabular form. If required, round your answer to two decimal places. If the amount is Zero, please enter "0"

2. Determine the average annual dividend per share for each class of stock for the six year period. Round your answer to two decimal places.

Average annual dividends for preferred stock

Average annual dividends for common stock

3. Assuming a market price of $100 for the preferred stock and $5 for the common stock, calculate the average annual percentage return on initial shareholders' investment, based on the average annual dividend per share (a) for preferred stock and (b) for common stock. Round your answer to one decimal place.

Answer 1

1)

Particulars	Calculation	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
Cumulative Preferred Stock Units		25,000.00	25,000.00	25,000.00	25,000.00	25,000.00	25,000.00
Price per preferred stock		90.00	90.00	90.00	90.00	90.00	90.00
Total Preferred Stock Amount	Cumulative Preferred Stock Units*Price per preferred stock	2,250,000.00	2,250,000.00	2,250,000.00	2,250,000.00	2,250,000.00	2,250,000.00
Common Stock Units		100,000.00	100,000.00	100,000.00	100,000.00	100,000.00	100,000.00
Price per common stock		4.00	4.00	4.00	4.00	4.00	4.00
Total Common Stock Amount	Common Stock Units*Price per common stock	400,000.00	400,000.00	400,000.00	400,000.00	400,000.00	400,000.00
Total Dividends Paid		24,000.00	10,000.00	126,000.00	100,000.00	125,000.00	125,000.00
Total Arrears in Dividend for preferred stock	Previous Year Total Dividend Due to preferred stock - Previous Year Total Dividend paid to preferred stock	0	21,000.00	56,000.00	0	0	0
Total Dividend Due to preferred stock	(2%*Total Preferred Stock Amount)+Total Arrears in Dividend for preferred stock	45,000.00	66,000.00	101,000.00	45,000.00	45,000.00	45,000.00
Total Dividend paid to preferred stock		24,000.00	10,000.00	101,000.00	45,000.00	45,000.00	45,000.00
Total Dividend paid to common stock		0	0	25,000.00	55,000.00	80,000.00	80,000.00
Per Share dividends - preferred stock	Total Dividend paid to preferred stock/Cumulative Preferred Stock Units	0.96	0.40	4.04	1.80	1.80	1.80
Per Share dividends - common stock	Total Dividend paid to common stock/Common Stock Units	0	0	0.25	0.55	0.80	0.80

2)

Average Annual Dividend for per preferred stock = Total Divided paid for all the 6 years / Cumulative number of preferred stock

Average Annual Dividend for per preferred stock = 270,000/150,000

Average Annual Dividend for per preferred stock = 1.80

Average Annual Dividend for per common stock = Total Divided paid for all the 6 years / Cumulative number of common stock

Average Annual Dividend for per common stock = 240,000/600,000

Average Annual Dividend for per common stock = 0.40

3)

Average Annual Dividend for per preferred stock		1.8
Average per share capital gain on the preferred stock	(Market price of per preferred stock - Initial price of per preferred stock )/Number of years	1.7
Total Average per share gain	Average Annual Dividend for per preferred stock + Average per share capital gain on the preferred stock	3.5
Average Annual Percentage Return	Total Average per share gain*100/Initial price of per preferred stock	3.85%

Average Annual Dividend for per common stock		0.4
Average per share capital gain on the common stock	(Market price of per common stock - Initial price of per common stock )/Number of years	0.2
Total Average per share gain	Average Annual Dividend for per common stock + Average per share capital gain on the common stock	0.6
Average Annual Percentage Return	Total Average per share gain*100/Initial price of per common stock	14.17%