Problem:

Cavalier Corp's articles of incorporation authorize the firm to issue 500,000 shares of $5 par value common stock, of which 325,000 shares have been issued. Those shares were sold at an average 12% over par. In the quarter that ended last week, Cavalier earned $260,000 net income; 4 percent of that income was paid as a dividend. Prior to the close of the books, Cavalier has $3,545,000 in retained earnings. The company owns no treasury stock.

Required:

Question 1: Calculate the book value of equity.

Question 2: Now the company sells 25,000 newly issued shares at a price of $4 per share. Par value of the shares is $5. What will be the book value of equity after the issue?

Note: Please provide full description.