Yosemite Bike Corp. manufactures mountain bikes and distributes them through ret

Question

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: 2009, $24,000; 2010, $10,000; 2011, $126,000; 2012, $100,000; 2013, $125,000; and 2014, $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.

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, 2009. Summarize the data in tabular form. If required, round your answers to two decimal places. If the amount is zero, please enter "0".

2.  Determine the average annual dividend per share for each class of stock for the six year period. Round your answers to two decimal places.

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. Round your answers to one decimal place.

Preferred Dividends Common Dividends
Year Total
      Dividends
Total
Per Share
Total
Per Share 2009 $24,000 $ $ $ $ 2010 10,000 2011 126,000 2012 100,000 2013 125,000 2014 125,000 $ $

Explanation / Answer

1. The table is posted below.

Annual dividend that should be paid to preferred equity holders = 25,000*2%*90 = 45,000

As total dividend is less than this figure in 2009 and 2010, all of the dividend gets paid to preferred equity holders so that there is zero dividend for common equity holders.

By 2011, there is arrear of (45,000*2-24,000-10,000) = 56,000 towards the preferred holders. Along with the 45,000 for 2011, there is a total payment of 56,000+45,000 = 101,000 towards preferred equity holders. The remaining dividend of 126,000-101,000 = 25,000 is paid towards common holders.

In 2012 to 2014, the preferred holders get the standard 45,000 while the remaining dividends get paid to common equity holders.

The per share dividend is calculated by dividing the dividend paid by the number of outstanding shares - this is 25,000 for preferred shares and 100,000 for common shares.

2. Total preferred dividend paid = 270,000

So average annual preferrred dividend/share = 270,000/6/25,000 = $1.80 per share

Total common dividend paid = 240,000

So average annual equity dividend/share = 240,000/6/100,000 = $0.40 per share

3. Preferred stock return = 1.80/100 = 1.8%

Common stock return = 0.40/5 = 8.0%

Hope this helped ! Let me know in case of any queries.

Preferred Dividends Common Dividends Year Total Dividends Total Per Share Total Per Share 2009 24,000 24,000 0.96 0 0.00 2010 10,000 10,000 0.40 0 0.00 2011 126,000 101,000 4.04 25,000 0.25 2012 100,000 45,000 1.80 55,000 0.55 2013 125,000 45,000 1.80 80,000 0.80 2014 125,000 45,000 1.80 80,000 0.80

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