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, $171,000; 2014, $198,000; 2015, $252,000; and 2016, $315,000. 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		171,000
2014		198,000
2015		252,000
2016		315,000
										$								$

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 $254 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

Answer 1

Cumulative Preferred stock annual dividend = 30,000 shares * $100 * 3 % =$90,000

		Preferred Dividends		Common Dividends
Year	Total Dividends ($)	Total ($)	Per Share($)	Total ($)	Per Share ($)
2011	36,000	36,000 [ outstanding = 90000 - 36,000 = 54,000]	1.20	0	0
2012	108,000	108,000 [ outstanding = 90000 -+ 54,000 - 108,000 = 36,000]	3.6	0	0
2013	171,000	1,26,000 [36,000 + 90000] [outstanding = 0]	4.2	45,000	0.45
2014	198,000	90,000	3	108,000	1.08
2015	252,000	90,000	3	162,000	1.62
2016	315,000	90,000	3	225,000	2.25
		Total	$18	Total	$5.40

Note :Per share = Total Dividend paid / No of shares.

Answer 2

Average annual dividend per share for Preferred stock = Total of Preferred Dividends per share / 6 years

= $18 / 6 years = $3 per share​

Average annual dividend per share for Common stock = Total of Common Dividends per share / 6 years

= $5.40 / 6 years = $0.89 per share.

Answer 3

Annual percentage return for Preferred stock =

Average annual dividend per share for Preferred stock / Market price per share = $3 / $254 = 1.18 %

Annual percentage return for Common stock =

Average annual dividend per share for Common stock / Market price per share = $0.89 / $25 = 3.56 %