Question

Rust Pipe Co. was established in 1994. Four years later the company went public. At that time, Robert Rust, the original owner, decided to establish two classes of stock. The first represents Class A founders' stock and is entitled to twelve votes per share. The normally traded common stock, designated as Class B, is entitled to one vote per share. In late 2010, Mr. Stone, an investor, was considering purchasing shares in Rust Pipe Co. While he knew the existence of founders’ shares were not often present in other companies, he decided to buy the shares anyway because of a new technology Rust Pipe had developed to improve the flow of liquids through pipes.

Of the 1,900,000 total shares currently outstanding, the original founder's family owns 52,725 shares.

What is the percentage of the founder's family votes to Class B votes? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

a. What is the price of the floating rate preferred stock most likely to be? (Do not round intermediate calculations and round your answer to 2 decimal places.)

b. What is the price of the straight preferred stock likely to be? (Do not round intermediate calculations and round your answer to 2 decimal places.)

Answer 1

Refer to the given values to calculate the value of the percentage of shares that are made to class B as follows:

Step 1:

The first step is to calculate the value of the number of total no.of shares that are owned by the family and are calculated by multiplying the original no.of shares owned by the no.of votes per share

Total No.of votes= Shares owned x votes per share

=52725 x 12

= 632700

Step 2:

the next step is to calculate the value of votes of class B as the difference between the total no.of shares and the founders family shares

Class B Votes = Total No.of shares outstanding - Founders family shares

= 1,900,000 - 52725

= 1847275

Step 3:

Compute the percentage of class B votes as follows

Percentage of votes =(632700 / 1847275) x 100

= 34.25%