Dividends on Preferred and Common Stock Pecan Theatre Inc, owns and operates mov
ID: 2578803 • Letter: D
Question
Dividends on Preferred and Common Stock Pecan Theatre Inc, owns and operates movie theaters throughout Florida and Georgia. Pecan Theatre has dedared the following annual dividends over a six-year period: Year 1, $80,000; Year 2, $90,000; Year 3, $150,000; Year 4, $150,000; Year 5, $160,000; and Year 6, $180,000. During the entire period ended December 31 af each year, the outstanding stock of the company was composed of 250,000 shares of cunulative preferred 2% stack, $20 par, and 500,000 shares ol common stock, $15 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 dvidends in arrears at the beginning of Year 1. Summarize the data in tabular form. If required, round your answers to two decimal places. If the amount is zero, please enter "o" Preferred Dividends Common Dividends Total Dividends Total Year Year 1 Year 2 Year 2 Year 4 Year 5 Year 6 Per Share Total Per Share $ 80,000 90,000 150,000 150,000 160,000 180,000 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 Average annual dividend for commorn 3. Assuming a market price per share of $25.00 for the preferred stock and $17.50 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 per share per share 9%Explanation / Answer
1) Table showing total Dividend and dividend per share (Amount in $)
Preferred Dividend per share (b/c)
Total Common stock dividend
(d = a-b)
No. of common stock
(e)
Common stock dividend per share
(d/e)
0.32
Working Notes:-
(i) As the preferred stock is of cumulative nature, therefore the dividend which remains unpaid on preferred stock due to insufficient profits will accumulate and paid in the year in which profits are available. In this case the total dividend due on preferred stock is $100,000 (250,000*$20*2%) but in year 1 the total dividend declared is only $80,000 which shall be distributed to preferred stock and their balance dividend of $20,000 will be accumulated.
(ii) In year 2, the total dividend is $90,000 which again shall be distributed to preferred stock only and the balance dividend will accumulate. In year 3 the total dividend is $150,000 out of which $130,000 (composed of $100,000 for year 3 and $20,000 of year 1 and $10,000 of year 2) will be distributed to preferred stock and balance $20,000 will be distributed to common stock.
(iii) In year 4, $100,000 will be distributed to preferred stock and the balance of $50,000 will be distributed to common stock.
2) Average Annual dividend for Preferred = Total dividend per share for 6 years/6 years = $2.40/6 = $0.40
Average Annual dividend for common = Total dividend per share for 6 years/6 years = $0.42/6 = $0.07
3) Average annual return on preferred stock = (Average annual dividend/Market price)*100
= ($0.40/$25.00)*100 = 1.6%
Average annual return on commom stock = (Average annual dividend/Market price)*100
= ($0.07/$17.50)*100 = 0.40%
Year Total Dividends (a) Total Preferred Dividend (b) Total no. of Preferred stock (c)Preferred Dividend per share (b/c)
Total Common stock dividend
(d = a-b)
No. of common stock
(e)
Common stock dividend per share
(d/e)
1 80,000 80,000 250,0000.32
0 500,000 0 2 90,000 90,000 250,000 0.36 0 500,000 0 3 150,000 130,000 250,000 0.52 20,000 500,000 0.04 4 150,000 100,000 250,000 0.40 50,000 500,000 0.10 5 160,000 100,000 250,000 0.40 60,000 500,000 0.12 6 180,000 100,000 250,000 0.40 80,000 500,000 0.16 Total Dividend per share 2.40 0.42