Love Theatre Inc. owns and operates movie theaters throughout New Mexico and Uta
ID: 2539198 • Letter: L
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, $20,000; 2012, $60,000; 2013, $90,000; 2014, $115,000; 2015 $145,000; and 2016, $175,000. During the entire period ending December 31 of each year, the outstanding stock of the company was composed of 25,000 shares of cumulative, 296 preferred stock, $100 par, and 100,000 shares of common stock, $5 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 "O" Preferred Dividends Common Dividends Total Dividends Total Per Share Total Per Share Year 2011 2012 2013 2014 2015 2016 $ 20,000 60,000 90,000 115,000 145,000 175,000 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 Average annual dividend for common per share per share 3. Assuming a market price per share of $93 for the preferred stock and $10 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 stockExplanation / Answer
Answer
1.
Year
Total Dividends
Preferred Dividends
Common Dividends
Total
Per Share
Total
Per Share
2011
20,000
20,000
(30,000 for next year)
0.80
-
-
2012
60,000
60,000
(30,000 of last year + 30,000 of current year)
And 20,000 due to next year
2.40
-
-
2013
90,000
70,000
(20,000 of last year + 50,000 of current year)
2.80
20,000
0.20
2014
115,000
50,000
2.00
65,000
0.65
2015
145,000
50,000
2.00
95,000
0.95
2016
175,000
50,000
2.00
125,000
1.25
Preferred Dividend = Preferred Capital * Rate of dividend
= (25,000 Shares * $100 per share) * 2%
Preferred Dividend = $50,000
Common Shares dividend = (Net Income – Preferred Dividend) / No. of Common Shares
Note 1
There is less profit to cover preference dividend and this is Cumulative class so if the profit is not sufficient then the remaining dividend will be carried to the next year and will be carried till it is paid.
Note 2
There will be no Common Shares dividend in first 2 years as the profit is not sufficient to cover preferred dividend and Equity is paid on the remaining profit i.e. After Preference Dividend.
If there is no Profit available to Common Shares then no dividend will be paid.
2.
Average annual dividend = Sum of all 6 year dividend / 6 Year
Average annual preferred dividend = $(0.8 + 2.4 + 2.8 + 2 + 2 + 2) / 6 Years
Average annual preferred dividend = $2 per dividend
Average annual Common dividend = $(0 + 0 + 0.2 + 0.65 + 0.95 + 1.25) / 6 Years
Average annual Common dividend = $0.508 per dividend
3.
Average Return = Average Dividend / Initial Investment in share
Average Preferred Return = $2 / $100
Average Preferred Return = 2%
Average Common Return = $0.508 / $5
Average Common Return = 10.16%
Year
Total Dividends
Preferred Dividends
Common Dividends
Total
Per Share
Total
Per Share
2011
20,000
20,000
(30,000 for next year)
0.80
-
-
2012
60,000
60,000
(30,000 of last year + 30,000 of current year)
And 20,000 due to next year
2.40
-
-
2013
90,000
70,000
(20,000 of last year + 50,000 of current year)
2.80
20,000
0.20
2014
115,000
50,000
2.00
65,000
0.65
2015
145,000
50,000
2.00
95,000
0.95
2016
175,000
50,000
2.00
125,000
1.25
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