TASK 2: Jarden Company’s common stock is currently selling on a stock exchange a
ID: 2468304 • Letter: T
Question
TASK 2: Jarden Company’s common stock is currently selling on a stock exchange at $90 per share, and its current balance sheet shows the following stockholders’ equity section:
Preferred stock – 8% cumulative, $____ par value, 1,500 shares authorized, issued and outstanding $375,000
Common stock--$____ par value, 18,000 shares authorized, issued and outstanding $900,000
Retained Earnings $1,125,000
Total stockholders’ equity $2,400,000
A. Determine the current market value (price) of this corporation’s common stock.
B. What are the par values of the corporation’s preferred stock and its common stock.
C. Assuming no dividends are in arrears, what are the book values per share of the (a) preferred stock and the (b) common stock?
D. If two years’ preferred dividends are in arrears, what are the book values per share of the (a) preferred stock and the (b) common stock?
E. If two years’ preferred dividends are in arrears and the preferred stock is callable at $280 per share, what are the book values per share of the (a) preferred stock and the (b) common stock?
TASK 3: CRITICAL THINKING
A. What are some factors that can contribute to a difference between the book value of common stock and its market value (price)?
B. Why is it that the book value of common stock is not always a good estimate of its market value?
Explanation / Answer
1. What is the current market value (price) of this corporation's common stock?
current market value (price) of this corporation's common stock = 90*18000
current market value (price) of this corporation's common stock = $ 1,620,000
2. What are the par values of the corporation's preferred stock and its common stock?
Par values of the corporation's preferred stock = 375000/1500 = $ 250
Par values of the corporation's common stock = 900,000/18000 = $ 50
3. If no dividends are in arrears, what are the book values per share of the preferred stock and the common stock?
Book values per share of the preferred stock = $ 250
Book values per share of the common stock = 50 + 1,125,000/18000 = $ 62.50
4. If two years preferred dividends are in arrears, what are the book values per share of the preferred stock and the common stock?
Book values per share of the preferred stock = $ 250 + 8%*375,000/1500 * 2 = 290
Book values per share of the common stock = 50 + (1,125,000-8%*375000*2)/18000 = $ 109.1667
5. If two years preferred dividends are in arrears and the preferred stock is callable at $280 per share, what are the book values per share of the preferred stock and the common stock?
Book values per share of the preferred stock = $ 280
Book values per share of the common stock = 50 + (1,125,000-30*1500)/18000 = $ 110
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