I am XXX, From XXX, Year 1.
This question is about Preference shares and Ordinary shares. Part (a) is about the amount of dividends paid during the third year. Group X, can you ask a group to answer this question. Part (b) asks us to compute the dividends paid per share during the third year for each of the three classes of shares. Let’s see Part (c), what was the average issue price of each type of preference shares?
The stockholders’ equity section of the balance sheet reports no additional paid-in capital. Thus, the preferred shares must have been issued at their respective par values ($50 per share for the 9% cumulative preferred stock, and $100 per share for the noncumulative preferred stock).
Part(d), since the Company’s ordinary shares is selling on SGX at $26 per share, you can use the price times the number of ordinary shares outstanding.
Part(e), actually, the question is talking about if the company have both preferred stock and common stock, how can we calculate book value per share of common stock.
Should we deduct the dividend paid for preferred stock in this case? No, because we need to deduct the amount assigned to the preferred stock and any dividend in arrears. Since all the dividend are paid for the preferred stock, there is no any dividend in arrears.
(i) Long term debt must be repaid at the maturity date. Besides, the interest rate is higher than the dividend from preference shares. Do you know why? We know preferred stock is still riskier than bond. How can’t its interest rate is higher than the dividend from preferred stock? Because preferences shares are not tax-deductible. Thus normally, the interest rate before tax is higher than the dividend from preferred stock, but after tax-deduction, the interest rate will be lower than rp.
(ii) Lenders/ Investors will have less confidence to loan/ invest if the company debt-equity ratio is large. High cost of debt service may...