Ch014 - Chapter 14: Long-Term Financing: An Introduction...

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Chapter 14: Long-Term Financing: An Introduction 14.1 a. Since the "common stock" entry in the balance sheet represents the total par value of the stock, simply divide that by the par per share: Common Stock $135,430 67,715 shares Par Value $2 = = b. Capital surplus is the amount received over par, so capital surplus minus par gives you the total dollars received. In aggregate, the solution is: Net capital from the sale of shares = Common Stock + Capital Surplus = $135,430 + $203,145 = $338,575 Therefore, the average price is $338,575 / 67,715 = $5 per share Alternatively, you can do this per share: 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 = 500 + 50,000 + 100,000 = $150,500 b. After issuing 1000 new shares, the firm will have 1500 shares outstanding, and the Capital surplus is found as: Capital Surplus Surplus last year Surplus on sale $50,000 ($30 - $1)1,000 $79,000 = + = + = B-251
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Common stock $1,500 Capital surplus 79,000 Retained earnings 100,000 Total $180,500 14.3 a. In order to create the equity statement (following the example in the previous question or the text), first find the components: Common stock = 325,000 shares outstanding x $5 par = $1,625,000 Capital Surplus = (Avg price - par) ( #shares) = ($5(1.12) - $5 ) (325,000) = $195,000 Retained earnings = previous retained earnings + Net income - Dividends = $3,545,000 + $260,000 - ($260,000)(0.04) = 3,794,600 Now, putting it all together: Shareholders’ equity Common stock $1,625,000 Capital in excess of par 195,000 Retained earnings 3,794,600 Total $5,614,600 b. Common stock = (325,000 outstanding + 25,000 new shares) x $5 par = $1,750,000 Capital Surplus = previous capital surplus, plus surplus from sale of new issues = $195,000 + (Avg price - par) ( # new shares) = $195,000 + ($4 - $5 ) (25,000) [note the "surplus" is negative!] = $170,000 Retained earnings = previous retained earnings + Net income - Dividends = $3,545,000 + $260,000 - ($260,000)(0.04) = 3,794,600 Shareholders’ equity Common stock
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This note was uploaded on 09/13/2011 for the course FIN 6301 taught by Professor El-asmawanti during the Fall '09 term at University of Texas at Dallas, Richardson.

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Ch014 - Chapter 14: Long-Term Financing: An Introduction...

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