Robbins Petroleum Company is four years in arrears on cumulative preferred stock dividends There are 690,000 preferred shares outstanding, and the annual dividend is $6 50 per share The Vice President of Finance sees no real hope of paying the dividends in arrears She is devising a plan to compensa...

Robbins Petroleum Company a 650 pe ...

Robbins Petroleum Company is four years in arrears on cumulative preferred stock dividends. There are 690,000 preferred

Question:

Robbins Petroleum Company is four years in arrears on cumulative preferred stock dividends. There are 690,000 preferred shares outstanding, and the annual is $6.50 per share. The Vice-President of Finance sees no real hope of paying the dividends in arrears. She is devising a plan to compensate the preferred stockholders for 80 percent of the dividends in arrears.
a. How much should the compensation be?
b. Robbins will compensate the preferred stockholders in the form of bonds paying 12 percent interest in a market environment in which the going rate of interest is 8 percent for similar bonds. The bonds will have a 15-year maturity. Indicate the market value of a $1,000 bond.
c. Based on market value, how many bonds must be issued to provide the compensation determined in part a? (Round to the nearest whole number.)

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...