Question

Love Theatre Inc. owns and operates movie theaters throughout New Mexico and Utah. Love Theatre has declared the following annual dividends over a six-year period: 2011, $36,000; 2012, $108,000; 2013, $162,000; 2014, $207,000; 2015, $261,000; and 2016, $324,000. During the entire period ending December 31 of each year, the outstanding stock of the company was composed of 30,000 shares of cumulative, 3% preferred stock, $100 par, and 100,000 shares of common stock, $20 par.

Required:

1. Calculate 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, 2011. Summarize the data in tabular form. If required, round your answers to two decimal places. If the amount is zero, please enter "0".

						Preferred Dividends								Common Dividends
Year		Total Dividends				Total				Per Share				Total				Per Share
2011		$   36,000				$				$				$				$
2012		108,000
2013		162,000
2014		207,000
2015		261,000
2016		324,000
										$								$

2. Calculate the average annual dividend per share for each class of stock for the six-year period. If required, round your answers to 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 $152 for the preferred stock and $25 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

Preferred Stock:

Number of shares = 30,000
Par Value = $100

Value of Preferred Stock = Number of shares * Par Value
Value of Preferred Stock = 30,000 * $100
Value of Preferred Stock = $3,000,000

Annual Dividend = 3% * Value of Preferred Stock
Annual Dividend = 3% * $3,000,000
Annual Dividend = $90,000

Common Stock:

Number of shares = 100,000
Par Value = $20

Answer 1.

Answer 2.

Preferred Stock:

Total Preferred Stock Dividend = $18.00 per share

Average annual dividend for preferred = Total Preferred Stock Dividend / 6
Average annual dividend for preferred = $18.00 / 6
Average annual dividend for preferred = $3.00 per share

Common Stock:

Total Common Stock Dividend = $5.58 per share

Average annual dividend for Common = Total Preferred Stock Dividend / 6
Average annual dividend for Common = $5.58 / 6
Average annual dividend for Common = $0.93 per share

Answer 3.

Preferred Stock:

Average annual percentage return = Average annual dividend for preferred / Market Price
Average annual percentage return = $3.00 / $152
Average annual percentage return = 1.97%

Common Stock:

Average annual percentage return = Average annual dividend for Common / Market Price
Average annual percentage return = $0.93 / $25
Average annual percentage return = 3.72%