chap014 - Chapter 14 Long-Term Financing An Introduction...

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¨ £ * Chapter 14: Long-Term Financing: An Introduction 14.1 a. Common Stock Account Par Value $135,430 $2 67,715 shares = = b. Net capital from the sale of shares = Common Stock + Capital Surplus Net capital = $135,430 + $203,145 = $338,575 Therefore, the average price is $338,575 / 67,715 = $5 per share Alternate solution: Average price = Par value + Average capital surplus = $2 + $203,145 / 67,715 = $5 per share c. Book value = Assets - Liabilities = Equity = Common stock + Capital surplus + Retained earnings = $2,708,600 Therefore, book value per share is $2,708,600 / 67,715= $40. 14.2 a. Common stock = (Shares outstanding ) x (Par value) = 500 x $1 = $500 Total = $150,500 b. Common stock (1500 shares outstanding, $1 par) $1,500 Capital surplus* 79,000 Retained earnings 100,000 Total $180,500 * Capital Surplus = Old surplus + Surplus on sale = $50,000 + ($30 - $1) x 1,000 =$79,000 14.3 a. Shareholders’ equity Common stock ($5 par value; authorized 500,000 shares; issued and outstanding 325,000 shares) $1,625,000 Capital in excess of par* 195,000 Retained earnings** 3,794,600 Total $5,614,600 *Capital surplus = 12% of Common Stock = (0.12) ($1,625,000) = $195,000 **Retained earnings = Old retained earnings + Net income - Dividends = $3,545,000 + $260,000 - ($260,000)(0.04) = 3,794,600 Answers to End-of-Chapter Problems B-137
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b. Shareholders’ equity Common stock ($5 par value; authorized 500,000 shares; issued and outstanding 350,000 shares) $1,750,000 Capital in excess of par* 170,000 Retained earnings 3,794,600 Total $5,714,600 *Capital surplus is reduced by the below par sale, i.e. $195,000 - ($1)(25,000) = $170,000 14.4 a. Under straight voting, one share equals one vote. Thus, to ensure the election of one director you must hold a majority of the shares. Since two million shares are outstanding, you must hold more than 1,000,000 shares to have a majority of votes. b. Cumulative voting is often more easily understood through a story. Remember that your goal is to elect one board member of the seven who will be chosen today. Suppose the firm has 28 shares outstanding. You own 4 of the shares and one other person owns the remaining 24 shares. Under cumulative voting, the total number of votes equals the number of shares times the number of directors being elected, (28) (7) = 196. Therefore, you have 28 votes and the other stockholder has 168 votes.
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