FINE 2000 Lecture Notes - Lecture 14: Retained Earnings, Canadian Business, Preferred Stock

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bluescorpion455

19 Apr 2016

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The true value of a security is not its market price but rather the price which is given to the investor considering all the information that is available to him currently. It means a price that incorporates all the information currently available to the investors. In that case selling a security at its market price in the market can never be a positive-npv transaction. Previously, in the equity section of a company, the par value of common stocks were mentioned which is on a per share basis and is lower than the price at which the shares are sold for. The total amount spent for the repurchase of shares is deducted from the total equity amount of the corporation. The shares repurchased at the average issue price is deducted from the common shares account and the remaining amount is deducted from the retained earnings account, or sometimes from the paid-in surplus account.

Related Questions

Ace Products sells marked playing cards to blackjack dealers. It has not paid a dividend in many years, but is currently contemplating some kind of dividend.

The capital accounts for the firm are as follows:


Common stock (2,300,000 shares at $5 par)	$	11,500,000
Capital in excess of par*		4,000,000
Retained earnings		24,500,000

Net worth	$	40,000,000

*The increase in capital in excess of par as a result of a stock dividend is equal to the new shares created times (Market price ? Par value).

The company

byzantiumhorse27

22. An efficient capital market is best defined as a market in which security prices reflect which one of the following?

A. The historical geometric rate of return

B. A risk premium

C. Available information

D. The historical arithmetic rate of return

23. Western Electric has 23,000 shares of common stock outstanding at a price per share of $57 and a rate of return of 14.2 percent. The firm has 6,000 shares of 7 percent preferred stock outstanding at a price of $48 a share. The preferred stock has a par value of $100. The company also has 350 corporate bonds, each with $1000 par value, and the bond currently sells for 102 percent of face. The yield-to-maturity on the debt is 8.49 percent.

What is the capital structure weight of the firm's preferred stock?

	A.	9.89%
	B.	14.72%
	C.	21.57%
	D.	28.26%

PLEASE ANSWER ALL QUESTIONS

Natsam Corporation has $325million of excess cash. The firm has no debt and $550 million shares outstanding with a current market price of $11 per share. Suppose the board decided to do aâ one-time shareâ repurchase, butâ you, as anâ investor, would have preferred to receive a dividend payment. How can you leave yourself in the same position as if the board had elected to make the dividend paymentâ instead?

Which of the following is true regarding the effect of aâ one-time share repurchase on the stockâ price? â(Select the best choiceâ below.)

A.Anâ open-market share repurchase decreases the stock price because theâ firm's assets decline by the amount of the purchases of the shares.

B.Anâ open-market share repurchase has no effect on the stockâ price, but the stock price is not the same as theâ cum-dividend price if a dividend were paid instead.

C.Anâ open-market share repurchase increases the stock price due to the decrease in shares in the marketplace.

D.Anâ open-market share repurchase has no effect on the stock price.

To receive yourâ dividend, the percentage of your shares you should sell is___________% â(Round to two decimalâ places.)

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FINE 2000 Lecture Notes - Lecture 14: Retained Earnings, Canadian Business, Preferred Stock

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