2. The authorized share capital of the Alfred Cake Company is 100,000 shares. The equity is currently shown in the company's books as follows: $40,000 Common stock ($.50 par value) Additional paid-in capital 10,000 30,000 80,000 Retained earnings Common equity Treasury stock (2,000 shares) Net common equity 5,000 $75,000 a. How many shares are issued? Y~ ana tar= 80 b. How many are outstanding? c. Explain the difference between your answers to (a) and (b). d. How many more shares can be issued without the approval of shareholders? e. Suppose that Alfred Cake issues 10,000 shares at $2 a share. Which of the above figures would be changed? f. Suppose instead that the company bought back 5,000 shares at $5 a share. Which of the above figures would be changed? 2 of 2 MINICASE cautioned about being too greedy on price. They pointed out that indications from investors were not the same as firm orders. Also, Mutt.Com was founded in 2006 by two graduates of the Univer- sity of Wisconsin with help from Georgina Sloberg, who had built up an enviable reputation for backing new start-up businesses. they argued, it was much more important to have a successful issue Mutt.Com's user-friendly system was designed to find buyers for than to have a group of disgruntled shareholders. They therefore unwanted pets. Within 3 years the company was generating rev- suggested an issue price of $18 a share. enues of $3.4 million a year and, despite racking up sizable losses, was regarded by investors as one of the hottest new e-commerce through some calculations. First, she worked out the net receipts to businesses. The news that the company was preparing to go public the company and the existing shareholders assuming that the stock therefore generated considerable excitement. The company's entire equity capital of 1.5 million shares was the IPO and tried to judge how they stacked up against the typical owned by the two founders and Ms. Sloberg. The initial public costs for similar IPOS. That brought her up against the question of offering involved the sale of 500,000 shares by the three existing underpricing. When she had raised the matter with the underwriters shareholders, together with the sale of a further 750,000 shares by the company in order to provide funds for expansion. The company estimated that the issue would involve legal fees, of the members of the underwriting team had asked: "The under- auditing, printing, and other expenses of $1.3 million, which would writers want to see a high return and a high stock price. Would be shared proportionately between the selling shareholders and the Mutt.Com prefer a low stock price? Would that make the issue less company. In addition, the company agreed to pay the underwriters costly?" Mutt.Com's financial manager was not convinced but felt a spread of $1 per share (this cost also would be shared). The roadshow had confirmed the high level of interest in the pricing was only a problem because the existing shareholders were issue, and indications from investors suggested that the entire issue selling part of their holdings. Perhaps the issue price would not could be sold at a price of $24 a share. The underwriters, however, That evening Mutt.Com's financial manager decided to run was sold for $18 a share. Next, she looked at the various costs of that morning, they had dismissed the notion that the initial day's returm on an IPO should be considered part of the issue costs. One that she should have a good answer. She wondered whether under- matter if they had not planned to sell