ch10 sol - CHAPTER 10 EQUITY MARKETS ANSWERS TO...

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1 CHAPTER 10 EQUITY MARKETS ANSWERS TO END-OF-CHAPTER QUESTIONS 3. Rowell Inc. has 100 million shares of common stock outstanding and the company is electing seven directors by means of cumulative voting. If a group of minority shareholders controls 31 million shares, how many directors is the group certain of electing? If straight voting was used, how many directors would the group be certain of electing? The number of directors they may elect under cumulative voting is determined by the following formula: 48 . 2 000 , 000 , 100 1 7 1 000 , 000 , 31 Shares Voting Total 1 Elected Directors of # 1 - Owned Shares Elected Directors of # The minority shareholders may elect 2 directors by cumulating their votes. With straight or majority voting, with only 31% of the shares, the minority shareholder group will not elect any directors. 4. Weber Corporation has 10 million shares of a preferred stock issue outstanding that pays a cumulative $6 annual dividend on a quarterly basis. However, due to poor profitability the company has not paid the preferred stock dividend for the last five quarters. The company also has 20 million shares of common stock outstanding. Weber Corporations’ profitability has improved recently and the board of directors believes that the company can pay $100 million in dividends next quarter. How much of a dividend can the company pay on its common stock? Of the $100 Million available for total dividends, the preferred stock is cumulative so that dividend arrearages must be paid before any dividend may be paid to common. Preferred Dividends to be paid : Quarterly preferred dividend = $6.00/4 = $1.50 Accumulated preferred dividend to be paid first = $1.50*5 = $7.50/share Total Preferred Dividends to be paid = $7.50 x 10 million shares = $75 million Before paying a common dividend, the current quarter’s preferred dividend must be paid. Amount due to preferred stockholders = ($1.50 x 10 Mil) = $15 Million,
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2 Common Dividends to be paid : Amount available for common stockholders = $10 Million Common dividends per share = $10 Mil/20 Mil. Shares = $0.50 per share 5. Arbuckle Corporation is selling two million shares of common stock in its initial public
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ch10 sol - CHAPTER 10 EQUITY MARKETS ANSWERS TO...

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