Reference no: EM132683460

Problem - Dividends on Preferred and Common Stock

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: 2007, $16,000; 2008, $48,000; 2009, $65,000; 2010, $90,000; 2011, $115,000; and 2012, $140,000. During the entire period ending December 31 of each year, the outstanding stock of the company was composed of 25,000 shares of cumulative, 2% preferred stock, $80 par, and 100,000 shares of common stock, $4 par.

Instructions -

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, 2007. Summarize the data in tabular form.

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

3. Assuming a market price per share of $128 for the preferred stock and $7.80 for the common stock, calculate 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.