Brazil Corporation has a simple capital structure, and its equity section follow
ID: 2593503 • Letter: B
Question
Brazil Corporation has a simple capital structure, and its equity section follows:
Stockholders' Equity
Common stock, $0.50 par value, 800,000 shares
authorized, 300,000 shares issued and outstanding $ 150,000
Paid-in capital in excess of par -- common stock 750,000
Retained earnings 2,400,000
Total stockholders' equity 3,300,000
Chile Corporation has a complex capital structure, and its equity section follows:
Stockholders' Equity
Capital stock:
Preferred stock, $50 par value, callable at 103, 5%,
cumulative, 100,000 shares authorized, 60,000
shares issued and outstanding $ 3,000,000
Common stock, $1 par value, 500,000 shares
authorized, 200,000 shares issued and outstanding 200,000 $ 3,200,000
Additional paid-in capital:
Paid-in capital in excess of par -- preferred stock $ 60,000
Paid-in capital in excess of par -- common stock 800,000 860,000
Total paid-in capital $ 4,060,000
Retained earnings 6,910,000
Total stockholders' equity $10,970,000
With the exception of the current year's preferred dividend which is now due, Chile has paid all dividends on the preferred stock.
Determine the issue price of each company's common and preferred stock. Determine the book value per common share for each company.
Brazil Corporation:
Chile Corporation:
Explanation / Answer
Ans: Computation of book value per common share of Brazil corporation:
Formula for Book value computation:
If Company is not having preferred stock:
[Total Common Stockholeders Equity / Number of common shares]
If Company is having preferred stock :
[Total Shareholders Equity - Total preferred stock par value) / common shares outstanding]
Book value of Brazil corporation:[ $3,300,000/3,00,000] = $ 11 per share.
Book value of Chile corporation: [($10,970,000 - $61,80,000WN1)/2,00,000] =$23.95 per share
Working Note 1:
Computation of Total preferred stock value: Callable value + Pending Dividend *Number of preferred stock pending
: (103+0)* 60,000= $61,80,000/-
Answer:
Issue price of Brazil Corporation : [$1,50,000+7,50,000/3,00,000]= $11
Issue price of Chile Corporation :
For Preferred Stock :[ $3,000,000+$60,000/60,000]= $51
For Common Stock : [2,00,000+8,00,000/2,00,000] = $ 5