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Lester Corp - Stock, Dividend Calculations

Lester Corp. manufactures mountain bikes and distributes them through retail outlets in Oregon and Washington. Lester Corp. has declared the following annual dividends over a six-year period: 2002, $40,000; 2003, $18,000; 2004, $24,000; 2005, $27,000; 2006, $65,000; and 2007, $54,000. During the entire period, the outstanding stock of the company was composed of 25,000 shares of cumulative, nonparticipating, 6% preferred stock, $20 par, and 40,000 shares of common stock, $1 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, 2002. Summarize the data in tabular form, using the following column headings:

Year Total
Dividends Preferred Dividends Common Dividends
Total Per Share Total Per Share
2002 $40,000
2003 18,000
2004 24,000
2005 27,000
2006 65,000
2007 54,000

2. Calculate the average annual dividend per share for each class of stock for the six-year period.
3. Assuming that the preferred stock was sold at par and common stock was sold at $8 at the beginning of the six-year period, calculate the average annual percentage return on initial shareholders' investment, based on the average annual dividends per share (a) for preferred stock and (b) for common stock.

Solution Preview

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, 2002. Summarize the data in tabular form, using the following column headings:

Each year the dividends to be paid for preferred stock is

25,000 shares x $20 x 6% = $30,000 per year or $1.20 per share

If in the case ...

Solution Summary

This solution is comprised of a detailed explanation to calculate the total dividends and the per-share dividends declared on each class of stock for each of the six years, calculate the average annual dividend per share for each class of stock for the six-year period, and assuming that the preferred stock was sold at par and common stock was sold at $8 at the beginning of the six-year period, calculate the average annual percentage return on initial shareholders' investment, based on the average annual dividends per share (a) for preferred stock and (b) for common stock.

$2.19