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capital accounts

Please help with the following learning objective. Please provide computation in step by step for easy to understand to use as a guide for the following questions.

1. Twenty-five-year B-rated bonds of Parker Optical Company were initially issued at a 12 percent yield. After 10 years the bonds have been upgraded to Aa2. such bonds are currently yielding 10 percent to maturity. use Table 16-3 on page 498 to determine to price of the bonds with 15 years remaining to maturity. (you do not need the bond ratings to enter the table; just use the basic facts of the problem.) (Table 16-3, page 498 is from Financial Management Course 661, Lesson 24).

2. Carl Hubbell owns 6,001 shares of the Piston Corp. There are 12 seats on the company board of directors, and the company has a total of 78,000 shares of stock outstanding. The Piston Corp. utilizes cumulative voting. Can Mr Hubbell elect himself to the board when the vote to elect 12 directors is held next week? (use Formula 17-2 on page 535 to determine if he can elect one director.). (Ref Financial Management Course 661, Lesson 24).

3. Ace Products sells marked playing cards to blackjack dealers. It has not paid a divident in many years, but is currently contemplating some kind of divident. The capital accounts for the firm are as follows:

Common stock (2,000,000 shares at $5 par)....... $10,000,000
Capital in excess of par*....................... 6,000,000
Retained earnings............................... 24,000,000
Net worth..................................... $40,000,000

* the increase in capital in excess of par as a result of a stock divident is equal to the new shares created times (Market price - Par Value).

The company's stock is selling for $20 per share. The company had total earnings of $4,000,000 during the year. With 2,000,000 hsares outstanding, earnings per share were $2.00. The firm has a P/E ration of 10.

(a) what adjustments would have to be made to the capital accounts for a 10 percent stock divident? show the new capital accounts.

(b) What adjustments would be made to EPS and the stock price? (Assume the P/E ratio remains constant.)

(c) How many shares would an investor end up with if he or she originally had 100 shares?

(d) what is the investor's total investment worth before and after the stock dividend if the P/E ratio remains constant? (There may be a $1 to $2 difference due to rounding)

(e) Has Ace products pulled a magic trick, or has it given the investor somethings of value? Explain.

Solution Summary

This post addresses capital accounts.

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