Question

M Chapter 17 Hw 17-4jpg ntpx 10.00 points Problem 17-19 Preferred stock dividends in arrears (L017-51 Robbins Petroleum Company is four years in arrears on cumulative preferred stock dividends. There are 880,000 prefermed shares outstanding, and 'he aneual dvidend is $9 50pe share. The Vice-President of Finance sees nor a hope of paying the di den s n a rears. She S devising a plan to compe sa ete pretened stock ders tr poi en t dividends in arrears. a. How much should the compensation be? (Do not round intermediate calculations, Input your answer in dollars, not millions (o.g. $1,.234,000 bonds. The bonds will have a 15-year maturity. Using the bond valuation Table 16.2. indicate the market value of a $1,000 par value bond (Round your answer to the nearest whe number.) t in which the going rate ot interest is 16 percent for sim O Type here to search

Answer 1

a.Annual Dividend per share = $9.50

Number of shares = 880,000

Dividend Outstanding = 880,000*9.50*4 = $33,440,000

Compensation = 90%

i.e. = $33,440,000*90%

= $30,096,000

b.Market value of bond is equal to the present value of all interest and principal payments at market rate of interest

Market Value = 120*PVAF(18%, 15 years) + 1000*PVF(18%, 15 years)

= 120*5.092 + 1,000*0.084

= $695.04

c.Number of bonds required to be issued = $30,096,000/695.04

= 43,301 (approx.)