Question

1/ Kuhns Corp. has 190,000 shares of preferred stock outstanding that is cumulative. The dividend is $7.10 per share and has not been paid for 3 years. If Kuhns earned $2.00 million this year, what could be the maximum payment to the preferred stockholders on a per share basis? (Round your answer to 2 decimal places.)

$12.03 per share

$10.53 per share

$9.43 per share

$12.78 per share

2/ Eight rights are necessary to purchase one share of Fogel stock at $43. A right sells for a $7. The ex-rights value of Fogel stock is

$99

$107

$104

$95

3/ Tricki Corp stock sells for $100 rights-on, and the subscription price is $90. Ten rights are required to purchase one share. Tomorrow the stock of Tricki will go ex-rights. What is the price of Tricki expected to be when it begins trading ex-rights? (Round your answer to 2 decimal places.)

$98.09

$101.09

$102.09

$99.09

Answer 1

SOLUTION

Question -1

The maximum payment to the preferred stockholders on a per share basis = $10.53 per share

Payment due = 190,000 * 3 years * $7.10 = 4,047,000

Net income earned = 2,000,000

The maximum payment to the preferred stockholders on a per share basis

= 2,000,000 / 190,000

= $10.53 per share

Question -2

The ex-rights value of Fogel stock is $99.

R = (Me - 50) / N

$7 = (Me - $43) / 8

Me - $43 = 56

Me = 56 +43 = 99

Question -3

Pice = $99.09

R = (Mo - S) / (N +1)

= (100-90)/(10 +1) = 0.91

Mo - R = Me

Me = 100 - 0.91 = $99.09