Five shareholders together own 35 percent of the outstanding stock of Edmonds Industries. The remaining 65% is divided among several thousand stockholders. There are 400,000 shares ol Edmonds stock currently outstanding. A condensed balance sheet follows. Assets Liabilities and Stockholders’ Equity Cash $ 3,150,000 Other current assets 4,200,000 Noncurrent assets 8,220,000 $15,570,000 Liabilities $ 1,250,000 Common stock 8,000,000 Retained earnings 6,320,000 Total liabilities and Total stockholders’ equity $15,570,000 assets 634 Part 4 Liabilities and Stockholders’ Equity: A Closer Look It has become known that Vadar, Inc., is planning to take over Edmonds by purchasing a controlling interest of the outstanding stock. Vadar hopes to gain enough control to elect a new board of directors and replace Edmonds’ current management. The current board of directors, on which the five major stockholders serve, is considering how to block the apparent takeover attempt. REQUIRED:

a. Describe how the company might be able to block the takeover attempt through a pro¬ gram of treasury stock purchases. How many shares would the company need to purchase to concentrate ownership enough to keep Vadar from acquiring a controlling interest? Assume that the other members of the board own no stock.

b. The current market price of the outstanding stock is $45, but the board feels that any major buy-back would have to be at a premium—approximately $50 per share. How much cash would Edmonds need to purchase enough shares to block the takeover attempt?

c. Assume that Edmonds was able to borrow $4,000,000 and used the cash to buy back the necessary number of shares. Prepare the balance sheet of Edmonds after stock had been purchased.

d. Compute the debt/equity ratio for Edmonds both before and after the treasury stock pur¬ chase. Comment on the effect of the purchase on the company’s financial position