Question

Dividends on Preferred and Common Stock 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, $36,000; Year 2, $108,000; Year 3, $171,000; Year 4, $198,000; Year 5, $252,000; and Year 6, $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, $25 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. If required, round your answers to two decimal places. If the amount is zero, please enter "0" Preferred Dividends Common Dividends Total Dividends Year Total Per Share Total Per Share $ 36,000 Year 1 Year 2 108,000 171,000 Year 3 Year 4 198,000 252,000 Year 5 Year 6 324,000 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 $138 for the preferred stock and $31 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 stock

Answer 1

1) Dividend distribution

Preferred dividend = 30000*100*3% = 90000

		Preferred dividend		Common dividend
Year	Total dividend	Total	Per share	Total	Per share
Year 1	36000	36000	1.2	0	0
Year 2	108000	108000	3.6	0	0
Year 3	171000	126000	4.2	45000	0.45
Year 4	198000	90000	3	108000	1.08
Year 5	252000	90000	3	162000	1.62
Year 6	324000	90000	3	234000	2.34
			18		5.49

2) Average annual dividend for preferred = 18/6 = 3

Average annual dividend for common = 5.49/6 = 0.92

3) Preferred dividend = 3/138 = 2.17%

Common dividend = 0.92/31 = 2.97%