Dividends on Preferred and Common Stock Pecan Theatre Inc. owns and operates mov
ID: 2583712 • Letter: D
Question
Dividends on Preferred and Common Stock Pecan Theatre Inc. owns and operates movie theaters throughout Florida and Georola. Pecan Theatre has declared the following annual dividends over a six-year period: Year 1 48,000; Year 2 $96,000; Year 3 $216,000; Year 4 $264,000: Year 5 $348,000; and Year 6 32,000. 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 $25 par Required: 1. Determine the total dividends and the per-share dividends declared on each class of stock for each of the slx years. There were no divldends in arrears at the beginning of Year 1. Summarize the data In tabular form. If requlred, round your answers to two decimal places. If the amount is zero, please enter " Preferred Dividends Common Dividends Total Dividends Total Per Share Total Per Share Year Year 1 48,000 Year 2 Year 3 Year 4 Year 5 Year 6 96,000 216,000 264,000 348,000 432,000 2. Determine the average annual dividend per share for each class of stock for the six-year periad. If required, round your answers to two decimal places. Average annual dividend for preferred Average annual dividend for common per share per share 3. Assuming a market price per share of $208 for the preferred stock and $30 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. Round your answers to two decimal places. Preferred stock Common stack 26Explanation / 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)
1.6
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 $120,000 (30,000*$100*4%) but in year 1 the total dividend declared is only $48,000 which shall be distributed to preferred stock and their balance dividend of $72,000 will be accumulated.
(ii) In year 2, the total dividend is $96,000 which again shall be distributed to preferred stock only and the balance dividend of $24,000 ($120,000-$96,000) will accumulate. In year 3 the total dividend is $216,000 which will be fully distributed to preferred stock (composed of $120,000 for year 3 and $72,000 of year 1 and $24,000 of year 2).
(iii) In year 4, $120,000 will be distributed to preferred stock and the balance of $144,000 will be distributed to common stock. Similarly in year 5 and 6, $120,000 will be distributed to preferred stock and the balance will be distributed to common stock.
2) Average Annual dividend for Preferred = Total dividend per share for 6 years/6 years = $24/6 = $4
Average Annual dividend for common = Total dividend per share for 6 years/6 years = $6.84/6 = $1.14
3) Average annual return on preferred stock = (Average annual dividend/Market price)*100
= ($4/$208)*100 = 1.92%
Average annual return on commom stock = (Average annual dividend/Market price)*100
= ($1.14/$30)*100 = 3.80%
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 48,000 48,000 30,0001.6
0 100,000 0 2 96,000 96,000 30,000 3.2 0 100,000 0 3 216,000 216,000 30,000 7.2 0 100,000 0 4 264,000 120,000 30,000 4 144,000 100,000 1.44 5 348,000 120,000 30,000 4 228,000 100,000 2.28 6 432,000 120,000 30,000 4 312,000 100,000 3.12 Total Dividend per share 24 6.84