Enterprise Storage Company has 400,000 shares of cumulative preferred stock outstanding, which has a stated dividend of
Question:
Enterprise Storage Company has 400,000 shares of cumulative preferred stock outstanding, which has a stated dividend of $4.75. It is six years in arrears in its dividend payments.
a. How much in total dollars is the company behind in its payments?
b. The firm proposes to offer new common shares to the preferred shareholders to wipe out the deficit. The common stock will pay the following dividends over the next four years:
D1, .............. $1 .25
D2, .............. 1.50
D3, .............. 1.75
D4, .............. 2.00
The company anticipates earnings per share after four years will be $4.05 with a P/E ratio of 12.
The common stock will be valued as the present value of future dividends plus the present value of the future stock price after four years. The discount rate used by the investment dealer is 10 percent. What is the calculated value of the common stock?
c. How many shares of common stock must be issued at the value computed in part b to eliminate the deficit (arrearage) computed in part a?
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Dealer
A dealer in the securities market is an individual or firm who stands ready and willing to buy a security for its own account (at its bid price) or sell from its own account (at its ask price). A dealer seeks to profit from the spread between the... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal... 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...
Step by Step Answer:
a Enterprise is in arrears on the preferred shares 6 years ...View the full answer
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
