Chapter 12, Problem 12.1APR

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, $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 of each year, the outstanding stock of the company was composed of 250,000 shares of cumulative, preferred 2% stock, $20 par, and 500,000 shares of common stock, $15 par.

Instructions

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, using the following column headings:

	Total	Preferred Dividends		Common Dividends
Year	Dividends	Total	Per Share	Total	Per Share
Year 1	$ 80,000
Year 2	90,000
Year 3	150,000
Year 4	150,000
Year5	160,000
Year 6	180,000

2. Determine the average annual dividend per share for each class of stock for the six-year period.

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.