Enterprise Storage Company has 460,000 shares of cumulative preferred stock outs
ID: 2627623 • Letter: E
Question
Enterprise Storage Company has 460,000 shares of cumulative preferred stock outstanding, which has a stated dividend of $5.50. It is six years in arrears in its dividend payments. Use Appendix B http://lectures.mhhe.com/connect/0077861612/Appendix_B.jpg for an approximate answer but calculate your final answer using the formula and financial calculator methods.
How much in total dollars is the company behind in its payments? (Do not round intermediate calculations. Input your answer in dollars, not millions (e.g., $1,234,000).)
The firm proposes to offer new common stock to the preferred stockholders to wipe out the deficit.
The company anticipates earnings per share after four years will be $4.11 with a P/E ratio of 12.
The common stock will be valued as the present value of future dividends plus the present value of the future stock price after four years. The discount rate used by the investment banker is 12 percent.
Compute the value of the common stock. (Do not round intermediate calculations and round your answer to 2 decimal places.)
How many shares of common stock must be issued at the value computed in part b to eliminate the deficit (arrearage) computed in part a? (Do not round intermediate calculations and round your answer to the nearest whole share.)
Number of shares of common stock 426,524
I only need help with part c of this question. Parts A & B are correct. For additional help with this question visit the tutorial at http://www.viddler.com/embed/fe8c2379/?f=1&autoplay=0&player=simple&disablebranding=0
Enterprise Storage Company has 460,000 shares of cumulative preferred stock outstanding, which has a stated dividend of $5.50. It is six years in arrears in its dividend payments. Use Appendix B http://lectures.mhhe.com/connect/0077861612/Appendix_B.jpg for an approximate answer but calculate your final answer using the formula and financial calculator methods.
Explanation / Answer
Number of shares of common stock= defecient/common stock=$15,180,000 /$35.9=422,841shares
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