1. Katie Homes and Garden Co. has 13,200,000 shares outstanding. The stock is currently selling at $50 per share. If an unfriendly outside group acquired 15 percent of the shares, existing stockholders will be able to buy new shares at 20 percent below the currently existing stock price.
a. How many shares must the unfriendly outside group acquire for the poison pill to go into effect? (Do not round intermediate calculations.)
Number of shares
b. What will be the new purchase price for the existing stockholders?
2. Mr. Meyers wishes to know how many shares are necessary to elect 2 directors out of 9 directors up for election in the Austin Power Company. There are 76,000 shares outstanding.
3. Betsy Ross owns 978 shares in the Hanson Fabrics Company. There are 16 directors to be elected. There are 42,000 shares outstanding. The firm has adopted cumulative voting.
a. How many total votes can be cast?
b. How many votes does Betsy control?
c. What percentage of the total votes does she control?
4. Midland Petroleum is holding a stockholders' meeting next month. Ms. Ramsey is the president of the company and has the support of the existing board of directors. All 13 members of the board are up for reelection. Mr. Clark is a dissident stockholder. He controls proxies for 35,001 shares. Ms. Ramsey and her friends on the board control 55,001 shares. Other stockholders, whose loyalties are unknown, will be voting the remaining 33,998 shares. The company uses cumulative voting.
a. How many directors can Mr. Clark be sure of electing?
b. How many directors can Ms. Ramsey and her friends be sure of electing?
c-1. How many directors could Mr. Clark elect if he obtains all the proxies for the uncommitted votes?
c-2. Will he control the board?
Yes
No
d. If nine directors were to be elected, and Ms. Ramsey and her friends had 63,001 shares and Mr. Clark had 43,001 shares plus half the uncommitted votes, how many directors could Mr. Clark elect?(Do not round intermediate calculations. Round down your answer to the nearest whole number.)
5. Rust Pipe Co. was established in 1994. Four years later, the company went public. At that time, Robert Rust, the original owner, decided to establish two classes of stock. The first represents Class A founders' stock and is entitled to eight votes per share. The normally traded common stock, designated as Class B, is entitled to one vote per share. In late 2010, Mr. Stone, an investor, was considering purchasing shares in Rust Pipe Co. While he knew the existence of founders' shares were not often present in other companies, he decided to buy the shares anyway because of a new technology Rust Pipe had developed to improve the flow of liquids through pipes.
Of the 1,400,000 total shares currently outstanding, the original founder's family owns 51,725 shares.
What is the percentage of the founder's family votes to Class B votes?
6. Mr. and Mrs. Anderson own six shares of Magic Tricks Corporation's common stock. The market value of the stock is $76. The Andersons also have $62 in cash. They have just received word of a rights offering. One new share of stock can be purchased at $62 for each six shares currently owned (based on six rights).
a. What is the value of a right?
b. What is the value of the Andersons' portfolio before the rights offering? (Portfolio in this question represents stock plus cash.)
c-1. Compute the diluted value (ex-rights) per share.
c-2. If the Andersons participate in the rights offering, what will be the value of their portfolio, based on the diluted value (ex-rights) of the stock?
d. If they sell their rights but keep their stock at its diluted value and hold on to their cash, what will be the value of their portfolio?
7. Walker Machine Tools has 5.6 million shares of common stock outstanding. The current market price of Walker common stock is $54 per share rights-on. The company's net income this year is $18.00 million. A rights offering has been announced in which 560,000 new shares will be sold at $48.50 per share. The subscription price plus four rights is needed to buy one of the new shares.
a. What are the earnings per share and price-earnings ratio before the new shares are sold via the rights offering?
b. What would the earnings per share be immediately after the rights offering? What would the price-earnings ratio be immediately after the rights offering? (Assume there is no change in the market value of the stock, except for the change when the stock begins trading ex-rights.)
8. Enterprise Storage Company has 580,000 shares of cumulative preferred stock outstanding, which has a stated dividend of $4.65. It is six years in arrears in its dividend payments. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
a. How much in total dollars is the company behind in its payments?
b. The firm proposes to offer new common stock to the preferred stockholders to wipe out the deficit.
The common stock will pay the following dividends over the next four years:
D1 $1.85
D2 1.95
D3 2.05
D4 2.15
The company anticipates earnings per share after four years will be $4.23 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 banker is 9 percent.
Compute the 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?
9. Ralston Gourmet Foods Inc. earned $190 million last year and retained $180 million.
What is the payout ratio?
Polycom Systems earned $487 million last year and paid out 24 percent of earnings in dividends.
a. By how much did the company's retained earnings increase?
b. With 100 million shares outstanding and a stock price of $163, what was the dividend yield? (Hint: First compute dividends per share.)
11. The following companies have different financial statistics.
Turtle Co. Hare Corp.
Growth rate in sales and earnings 21 % 6 %
Cash as a percentage of total assets 3 20
a. What dividend policy would you recommend for Turtle Co.?
b. What dividend policy would you recommend for Hare Corp.?
12. Planetary Travel Co. has $197,000,000 in stockholders' equity. Common stock is $40,000,000 and the balance is retained earnings. The firm has $265,000,000 in total assets and 2 percent of this value is in cash. Earnings for the year are $26,000,000 and are included in retained earnings.
a. What is the legal limit on current dividends?
b. What is the practical limit based on liquidity?
c. If the company pays out the amount in part b, what is the dividend payout ratio?