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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.
For parts 1 and 2, round all answers to nearest whole cent. Enter a zero if no dividends will be paid.
1. Use the attached spreadsheet to reach the solutions for this problem.
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:
Year Total
Dividends Preferred Dividends Common 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 six year period.
Average annual dividend for preferred: $ per share
Average annual dividend for common: $ 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 stockholders’ investment, based on the average annual dividend per share (a) for preferred stock and (b) for common stock.
Round to one decimal place.
Preferred stock: %
Common stock: %
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Posted on September 15, 2011.
With preferred cumulative dividends, any preferred dividends in arrears must be paid before common shareholders receive dividends.
1)
10,000 x 2% x 100 = $20,000 dividends owed to preferred shareholders each year
2005 5,000
Preferred
Total $5,000
5,000 / 10,000 = $0.50 per share, $15,000 dividends is in arrears
Common
0
2006 18,000
Preferred
Total $18,000
18,000 / 10,000 = $1.80 per share. There is now $17,000 dividends in arrears
Common
0
2007 45,000
Preferred
Total $37,000
37,000 / 10,000 = $3.70 per share. There are now 0 dividends in arrears
Common
Total $8,000
8,000 / 25,000 = $0.32 per share
2008 45,000
Preferred
Total $20,000
20,000 / 10,000 = $2 per share
Common
Total $25,000
25,000 / 25,000 = $1 per share
2009 60,000
Preferred
Total $20,000
20,000 / 10,000 = $2 per share
Common
Total $40,000
40,000 / 25,000 = $1.60 per share
2010 67,000
Preferred
Total $20,000
20,000 / 10,000 = $2 per share
Common
Total $47,000
47,000 / 25,000 = $1.88 per share
2. Determine the average annual dividend per share for each class of stock for the six year period.
Since there are no preferred dividends in arrears at the end of the six year period, annual dividend per share for preferred stock is $2.00 per share, the same amount they are owed every year. For common share holders, first add up total dividends paid to them.
8,000 + 25,000 + 40,000 + 47,000 = 120,000
There were 25,000 shares outstanding each year and there were six years. 6.x 25,000 = 150,000.
120,000 / 150,000 = $0.80 average annual dividend per share for common stock.
3) Not sure about this one. Maybe someone else can help.
Here is the process for calculating the answers:
Cumulative preferred stock : 10,000 shares * $100 par value * 2% <