Love Theatre Inc. owns and operates movie theaters throughout New Mexico and Uta

Question

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: 2011, $64,000; 2012, $192,000; 2013, $288,000; 2014, $352,000; 2015, $448,000; and 2016, $576,000. During the entire period ending December 31 of each year, the outstanding stock of the company was composed of 40,000 shares of cumulative, 4% preferred stock, $100 par, and 100,000 shares of common stock, $10 par. Required: 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, 2011. 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 Year Total Dividends Total Per Share Total Per Share 2011 $ 64,000 $ $ $ $ 2012 192,000 2013 288,000 2014 352,000 2015 448,000 2016 576,000 $ $ 2. Calculate 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 $256 for the preferred stock and $16 for the common stock, calculate 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 %

Explanation / Answer

1)

2)

Average annual dividend for preferred = 24/6 = $ 3

Average annual dividend for common= 9.60/6 = $ 1.60

3)

Average annual percentage return for the Prefered stock = 4/256

Average annual percentage return for the Prefered stock = 1.56%

Average annual percentage return for the common stock = 1.60/16

Average annual percentage return for the common stock = 10%

Working

Preferred Stock

Prefered Stock Dividend payable each year = 4%*100 * 40000 = 160000

Dividend Paid in 2011 = 64000

Dividend in Arrear in 2011 = 160000-64000 = 96000

Dividend Paid in 2012 = 160000 + (192000-160000)

Dividend Paid in 2012 = 160000+ 32000 = 192000

Dividend in Arrear in 2012 = 96000-320000 = 64000

Dividend Paid in 2013 = 160000+64000

Dividend Paid in 2013 = 224000

Preferred Dividends Common Dividends Year Total Dividends Total Per Share Total Per Share [a] [b] [c = b/40000] [d = a-b] [e = d/100000] 2011 64000 64000                       1.60 0                          -   2012 192000 192000                       4.80 0                          -   2013 288000 224000                       5.60 64000                     0.64 2014 352000 160000                       4.00 192000                     1.92 2015 448000 160000                       4.00 288000                     2.88 2016 576000 160000                       4.00 416000                     4.16 1920000                 960,000                     24.00                960,000                     9.60

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