Preferred DividendsCommon DividendsTotalDividendsTotalPer ShareTotalPer ShareYear$ 24,000Year 1Year 210,000126,000Year 3Year 4100,000Year 5125,000Year 6125,0002. 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,calculate the average annual percentage return on initial shareholders' investment,based on the average annual dividend per share (a) for preferred stock and (b) forcommon stock.

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Asked Dec 19, 2019
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Yosemite Bike Corp. manufactures mountain bikes and distributes them through retail outlets in California, Oregon, and Washington. Yosemite Bike Corp. has declared the following annual dividends over a six-year period ended December 31 of each year:
Year 1, $24,000; Year 2, $10,000; Year 3, $126,000; Year 4, $100,000; Year 5, $125,000; and Year 6, $125,000. During the entire period, the outstanding stock of the company was composed of 25,000 shares of cumulative preferred 2% stock, $90 par, and 100,000 shares of common stock, $4 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, Year
1. Summarize the data in tabular form, using the following column headings:

Preferred Dividends
Common Dividends
Total
Dividends
Total
Per Share
Total
Per Share
Year
$ 24,000
Year 1
Year 2
10,000
126,000
Year 3
Year 4
100,000
Year 5
125,000
Year 6
125,000
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,
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.
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Preferred Dividends Common Dividends Total Dividends Total Per Share Total Per Share Year $ 24,000 Year 1 Year 2 10,000 126,000 Year 3 Year 4 100,000 Year 5 125,000 Year 6 125,000 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, 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.

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Expert Answer

Step 1

1.

Determine the total dividends and the amount of dividends declared per share for preferred and common stock for each of the six years.

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Preferred dividends Common dividends Year Total dividends Per Total share Total Per share $ 24,000 $ 10,000 $ 126,000 $ 100,000 $ 125,000 $ 125,000 $0 $0 $ 0.25 $ 0.55 $ 24,000 $ 10,000 $ 101,000 $ 45,000 $ 45,000 $ 45,000 $0.96 1 $0.40 $ 4.04 $ 25,000 $ 1.80 $ 55,000 $ 1.80 $ 80,000 $ 1.80 $ 80,000 $0 3 4 5 $0.80 6. $0.80 Working note: Calculate the amount to be paid as preferred dividend each year. [Number of cumulative preferred shares x Par value per share x 2% dividend Amount to be paid as preferred dividend each yearf = 25,000 sharesx $90 per share x 2% =$45,000 |Year 2 Year 3 Year 1 Year 4 $ 24,000 S 10,000 S 126,000 S 100,000 S 125,000 S 125,000 $ 24,000 s 10,000 S 45,000 $ 45,000 $ 45,000 $ 45,000 $ 56,000 $ 24,000 s 10,000s 101,000 S 45,000 $ 45,000 $ 45,000 so S 25,000 S 55,000 S 80,000 S 80,000 Year 4 Year 4 Particulars Total dividends declared (a) Preferred dividend (For current year) (b) Preferred dividend paid in arrears (c) Total preferred dividends (d) = (b) + (c) Common dividend (e) = (a) - (d) SO Dividend per share: Preferred stock (Total preferred dividend (d) 25,000 preference shares $0.40 $4.04 $ 1.80 $0.96 $1.80 $1.80 Common stock Common dividend (e) $0.00 $0.00 $0.25 $0.55 $0.80 $0.80 100,000 common shares

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Step 2

2.

Determine average annual dividend per share for preferre...

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Determine average annual dividend per share for preferred stock for the six-year period. [Total annual dividend paid Average annual dividend per) share for pre fered share per share for six years six years $0.96+$0.40 +$4.04 + $1.80+$1.80 +$1.80 = $1.80 Determine average annual dividend per share for common stock for the six-year period. Total annual dividend paid Average annual dividend per) per common share for six years share for common share six years $0 + $0 + $0.25 + $0.55 + $0.80+ $0.80 = $0.40

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