Reference no: EM133175608

Question - Dividends on Preferred and Common Stock - Black Bear Bike Corp. manufactures mountain bikes and distributes them through retail outlets in California, Oregon, and Washington. Black Bear Bike Corp. has declared the following annual dividends over a six-year period ended December 31 of each year: Year 1, $42,500; Year 2, $18,000; Year 3, $223,500; Year 4, $178,000; Year 5, $222,000; and Year 6, $222,000. During the entire period, the outstanding stock of the company was composed of 50,000 shares of cumulative preferred 2% stock, $80 par, and 100,000 shares of common stock, $4 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 on January 1, Year 1. Summarize the data in tabular form.

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

3. Assuming a market price of $100 for the preferred stock and $5 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.