Purchase Solution

# Dividends on Preferred and Common Stock

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Scenario
Magnifico Inc. owns and operates movie theaters throughout Georgia and Mississippi. Magnifico has declared the following annual dividends over a six-year period: 2000, \$32,000; 2001, \$65,000; 2002, \$84,000; 2003, \$60,000; 2004, \$72,000; and 2005, \$95,000. During the entire period, the outstanding stock of the company was composed of 25,000 shares of cumulative, \$2 preferred stock, \$100 par, and 50,000 shares of common stock, \$7 par.

Instructions:
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, 2000. Summarize the data in tabular form, using the following column headings: Please explain each step thoroughly!

Preferred Dividends Common Dividends
Year Total Dividends Total Per Share Total Per Share
2000 \$32,000
2001 65,000
2002 84,000
2003 60,000
2004 72,000
2005 95,000

2. Calculate the average annual dividend per share for each class of stock for the six-year period. Please explain each step thoroughly!

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 percentage return on initial shareholders' investment, based on the average annual dividend per share (a) for preferred stock and (b) for common stock. Please explain each step thoroughly!

Please use Word or Excel.

##### Solution Summary

Answers questions on dividends on Preferred and Common Stock.

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