How do I calculate this problem? Bridger Bike Corp. manufactures mountain bikes

Question

How do I calculate this problem?
Bridger Bike Corp. manufactures mountain bikes and distributes them through retail
outlets in Montana, Idaho, Oregon, and Washington. Bridger Bike Corp. has declared
the following annual dividends over a six-year period ending December 31 of each
year: 2005, $5,000; 2006, $18,000; 2007, $45,000; 2008, $45,000; 2009, $60,000; and 2010,
$67,000. During the entire period, the outstanding stock of the company was composed
of 10,000 shares of 2% cumulative preferred stock, $100 par, and 25,000 shares of common
stock, $1 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 on January 1,
2005. Summarize the data in tabular form, using the following column headings:
Total __P_r_e_fe_r_r_e_d_ _D_i_v_i_d_e_n_d_s__ __C_o_m__m__o_n_ _D_i_v_i_d_e_n_d_s__
Year Dividends Total Per Share Total Per Share
2005 $ 5,000
2006 18,000
2007 45,000
2008 45,000
2009 60,000
2010 67,000
2. Determine the average annual dividend per share for each class of stock for the sixyear
period.
3. Assuming a market price of $125 for the preferred stock and $8 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.

Explanation / Answer

Preferred Dividend = 10,000 share x $100 x 2% = $20,000 Preferred Dividends Preferred Dividends Year Total Dividends Total Per share Total Per share 2005 5,000 5,000 0.5 0 0 2006 18,000 18,000 1.8 0 0 2007 45,000 37,000 3.7 8,000 0.32 2008 45,000 20,000 2 25,000 1 2009 60,000 20,000 2 40,000 1.60 2010 67,000 20,000 2 47,000 1.88 12 4.8 From the details of dividend paid we notice that in the years 2005 & 2006 minimum preferred dividend of $20,000 was not paid. The company issued cummulative preferred stock and thus whatever is the arrears in dividends, wll be paid in the subsequent years when there are profits available for dividend distribution. Arrears in dividends in the years: 2005 - 15,000 2006 - 2,000 Total arrears 17,000 Total dividends of $45,000 in the year 2007 will be used for preferred dividend payment for 2007 and the arrears for the preceeding 2 years. Thus preferred dividend for year 2007 will be 20,000 + 17,000 = $37,000 2 Average annual dividend = Total dividend per share / no. of years. Average annual dividend for preferred stock = $12/ 6 = $2 per share Average annual dividend for Common stock = $4.80/ 6 = $0.80 per share 3. Assuming a market price of $125 for the preferred stock and $8 for the common stock, calculate the average annual percentage return on initial shareholders’ investments, based on the average annual dividend per share (a) for preferred stock and (b) for common stock. Average annual percentage return on initial shareholders' investment = average annual dividend/ initial share price a) Annual percentage return on preferred stock = $2/ $125 = 1.60% b) Annual percentage return on common stock = $0.80/ $8 = 10%

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