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: 20Y1, $48,000; 20Y2, $96,000; 20Y3, $216,000; 20Y4, $276,000; 20Y5, $336,000; and 20Y6, $432,000. During the entire period ended December 31 of each year, the outstanding stock of the company was composed of 30,000 shares of cumulative, preferred 4% stock, $100 par, and 100,000 shares of common stock, $10 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 20Y1. Summarize the data in tabular form. If required, round your answers to two decimal places. If the amount is zero, please enter "0".

  Preferred DividendsCommon Dividends

Year Total
Dividends
Total
Per Share
Total
Per Share

20Y1 $   48,000   $   $   $   $   

20Y2 96,000               

20Y3 216,000               

20Y4 276,000               

20Y5 336,000               

20Y6 432,000               

       $       $   

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 $200 for the preferred stock and $14 for the common stock, determine 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 answers to two decimal places.

Preferred stock %

Common stock %

Answer 1

1			Preferred dividends	Common dividend
	Year	Total dividends	Total	Per share	Total	Per share
			a	a/30000	b	b/100000
	20Y1	48000	48000	1.6	0	0
	20Y2	96000	96000	3.2	0	0
	20Y3	216000	216000	7.2	0	0
	20Y4	276000	120000	4	156000	1.56
	20Y5	336000	120000	4	216000	2.16
	20Y6	432000	120000	4	312000	3.12
	Total			24		6.84
	Preferred dividend=30000*100*4%=$ 120000
	Preferred dividend is cumulative.It means any pending dividend in any year will be paid later.
	Prefered dividend will be paid before any dividend to common stockholders
	20Y3:
	Preferred dividend in arrears for 20Y1=120000-48000=$ 72000
	Preferred dividend in arrears for 20Y2=120000-96000=$ 24000
	Total dividend in arrears=72000+24000=$ 96000
	Current year preferred dividend=$ 120000
	Total preferred dividend=120000+96000=$ 216000
	20Y4:
	Current year preferred dividend=$ 90000
	Common dividend=Total dividend-Preferred dividend=198000-90000=$ 108000
	20Y5:
	Current year preferred dividend=$ 90000
	Common dividend=Total dividend-Preferred dividend=252000-90000=$ 162000
	20Y6:
	Current year preferred dividend=$ 90000
	Common dividend=Total dividend-Preferred dividend=315000-90000=$ 225000
2	Average annual dividend for preferred=Total preferred dividend per share/6=24/6=$4 per share
	Average annual dividend for common=Total common dividend per share/6=6.84/6=$1.14 per share
3	Average annual percentage return=Average annual dividend per share/Market price per share
	Preferred stock:
	Average annual percentage return=4/200=0.02=2%
	Common stock:
	Average annual percentage return=1.14/14=0.081429=8.14%