Question

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: Year 1, $16,000; Year 2, $32,000; Year 3, $112,000; Year 4, $122,000; Year 5, $134,000; and Year 6, $148,000. During the entire period ended December 31 of each year, the outstanding stock of the company was composed of 20,000 shares of cumulative preferred 2% stock, $100 par, and 100,000 shares of common stock, $20 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 Year 1. Summarize the data in tabular form. Note: If required, round your answers to two decimal places. If the amount is zero, enter "0". Preferred Dividends Common Dividends Year Total Dividends Total Per Share Total Per Share Year 1 $ 16,000 $ $ $ $ Year 2 32,000 Year 3 112,000 Year 4 122,000 Year 5 134,000 Year 6 148,000 $ $ 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 $120 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 for preferred stock and for common stock. Use the rounded amounts from part 2 in future computations. And round your final answers to two decimal places. Preferred stock % Common stock % Feedback 1. Is the preferred stock cumulative or non-cumulative? How will the preferred stock being cumulative or non-cumulative affect the distribution of dividends? Determine what amount of current dividends the preferred stock should receive per year. Recall the definition of dividends "in arrears". How much in dividends would each share of preferred stock receive each year? How much in dividends would each share of common stock receive each year? 2. Remember you are calculating the average per share for each class of stock, not in total. 3. What would the preferred and common stockholder receive as a return on their initial investment based on the average annual dividend? Learning Objective 2. Check My Work

Answer 1

There are Cumulative preference shares, So we will pay them first and If that dividend is not sufficient to pay the required share of Cumulative preference shareholders then their remaining Unpaid dividend will be carried forward to the next year till it is paid.

Preference Shareholder’s dividend = $40,000

Preference Shareholder’s dividend = 20,000 Shares * $100 * 2%

Year	Total Dividend	Pref. Dividend paid	Pref. per share	Pref. Dividend Remaining	Equity Dividend	Equity Per share
1 year	16,000.00	16,000.00	0.08	24,000.00	-	-
2 year	32,000.00	32,000.00	0.16	32,000.00 (24,000 + 8,000)	-	-
3 year	112,000.00	72,000.00 (40,000 + 32,000)	0.36	-	40,000.00	0.40
4 year	122,000.00	40,000.00	0.20	-	82,000.00	0.82
5 year	134,000.00	40,000.00	0.20	-	94,000.00	0.94
6 year	148,000.00	40,000.00	0.20	-	108,000.00	1.08