Chapter 7 Solution Managerial Finance
Chapter 7 Stock Valuation Solution to Problems
P7-1. LG 2: Authorized and Available Shares
Basic
(a) Maximum shares available for sale
Authorized shares 2,000,000
Less: Shares outstanding 1,400,000
Available shares 600,000
(b) $48,000,000Total shares needed 800,000 shares$60==
The firm requires an additional 200,000 authorized shares to raise the necessary funds at $60 per share.
(c) Aspin must amend its corporate charter to authorize the issuance of additional shares.
P7-2. LG 2: Preferred Dividends
Intermediate
(a) $8.80 per year or $2.20 per quarter
(b) $2.20 For a noncumulative preferred only the latest dividend has to be paid before dividends can be paid on common stock.
(c) $8.80 For cumulative preferred all dividends in arrears must be paid before dividends can be paid on common stock. In this case the board must pay the 3 dividends missed plus the current dividend.
P7-3. LG 2: Preferred Dividends
Intermediate
A $15.002 quarters in arrears plus the latest quarter
B $8.80 only the latest quarter
C $11.00 only the latest quarter
D $25.504 quarters in arrears plus the latest quarter
E $8.10 only the latest quarter
Chapter 7 Stock Valuation 171
P7-4. LG 2: Convertible Preferred Stock
Challenge
(a) Conversion value = conversion ratio × stock price = 5 × $20 = $100
(b) Based on comparison of the preferred stock price versus the conversion value the investor should convert. If converted, the investor has $100 of value versus only $96 if she keeps ownership of the preferred stock.
(c) If the investor converts to common stock she will begin receiving $1.00 per share per year of dividends. Conversion will generate $5.00 per year of total dividends. If the investor keeps the preferred they will receive $10.00 per year of dividends. This additional $5.00 per year in dividends may cause the investor to keep the preferred until forced to convert through use of the call feature.
P7-5. LG 2: Stock Quotation
Basic
(a) Wednesday, December 13
(b) $81.75
(c) +3.2%
(d) P/E
P7-1. LG 2: Authorized and Available Shares
Basic
(a) Maximum shares available for sale
Authorized shares 2,000,000
Less: Shares outstanding 1,400,000
Available shares 600,000
(b) $48,000,000Total shares needed 800,000 shares$60==
The firm requires an additional 200,000 authorized shares to raise the necessary funds at $60 per share.
(c) Aspin must amend its corporate charter to authorize the issuance of additional shares.
P7-2. LG 2: Preferred Dividends
Intermediate
(a) $8.80 per year or $2.20 per quarter
(b) $2.20 For a noncumulative preferred only the latest dividend has to be paid before dividends can be paid on common stock.
(c) $8.80 For cumulative preferred all dividends in arrears must be paid before dividends can be paid on common stock. In this case the board must pay the 3 dividends missed plus the current dividend.
P7-3. LG 2: Preferred Dividends
Intermediate
A $15.002 quarters in arrears plus the latest quarter
B $8.80 only the latest quarter
C $11.00 only the latest quarter
D $25.504 quarters in arrears plus the latest quarter
E $8.10 only the latest quarter
Chapter 7 Stock Valuation 171
P7-4. LG 2: Convertible Preferred Stock
Challenge
(a) Conversion value = conversion ratio × stock price = 5 × $20 = $100
(b) Based on comparison of the preferred stock price versus the conversion value the investor should convert. If converted, the investor has $100 of value versus only $96 if she keeps ownership of the preferred stock.
(c) If the investor converts to common stock she will begin receiving $1.00 per share per year of dividends. Conversion will generate $5.00 per year of total dividends. If the investor keeps the preferred they will receive $10.00 per year of dividends. This additional $5.00 per year in dividends may cause the investor to keep the preferred until forced to convert through use of the call feature.
P7-5. LG 2: Stock Quotation
Basic
(a) Wednesday, December 13
(b) $81.75
(c) +3.2%
(d) P/E