Diploma Mills has $33 million in earnings

Problem 17-1 Residual claims to earnings [LO1]

Diploma Mills has $33 million in earnings, pays $4.30 million in interest to bondholders, and $2.65 million in dividends to preferred stockholders.

 

(a) What are the common stockholders’ residual claims to earnings? (Enter your answer in millions of dollars rounded to 2 decimal places. Omit the “$” sign in your response.)

 

  Residual claims to earnings $  million

 

 

2.

value:
1.00 points

 

Problem 17-2 Residual claims to earnings [LO1]

Text-Messaging Inc. has $76 million in earnings and is considering paying $8.60 million in interest to bondholders and $6.80 million in dividends to preferred stockholders. Use Table 17-3.

 

(a) What are the bondholders contractual claims to payment? (Enter your answer in millions of dollars rounded to 2 decimal places. Omit the “$” sign in your response.)

 

  Legal contractual claim $  million

 

 

3.

value:
1.00 points

 

Problem 17-3 Poison pill [LO4]

Steele Pipe Co. has 13,300,000 shares of stock outstanding, currently selling at $52 per share. If an unfriendly outside group acquired 25 percent of the shares, existing stockholders will be able to buy new shares at 30 percent below the currently existing stock price.

 

(a) How many shares must the unfriendly outside group acquire for the poison pill to go into effect?

 

  Number of shares

 

(b) What will be the new purchase price for the existing stockholders? (Round your answer to 2 decimal places. Omit the “$” sign in your response.)

 

  New purchase price $

 

 

4.

value:
1.00 points

 

Problem 17-4 Cumulative voting [LO2]

Russell Stover Jr. wishes to know how many shares are necessary to elect 3 directors out of 9 directors up for election for the Tasty Candy Company board. There are 77,000 shares outstanding.

 

  Number of shares

 

 

5.

value:
1.00 points    

 

Problem 17-7 Cumulative voting [LO2]

Betsy Ross owns 945 shares in the Hanson Fabrics Company. There are 14 directors to be elected. Thirty-six thousand five hundred shares are outstanding. The firm has adopted cumulative voting.

 

(a) How many total votes can be cast?

 

  Total votes

 

(b) How many votes does Betsy control?

 

  Votes

 

(c) What percentage of the total votes does she control? (Round your answer to 2 decimal places. Omit the “%” sign in your response.)

 

  Percentage of votes  %

 

 

6.

value:
1.00 points

 

Problem 17-9 Dissident stockholder group and cumulative voting [LO2]

Midland Petroleum is holding a stockholders’ meeting next month. Ms. Ramsey is the president of the company and has the support of the existing board of directors. All 14 members of the board are up for reelection. Mr. Clark is a dissident stockholder. He controls proxies for 38,001 shares. Ms. Ramsey and her friends on the board control 48,001 shares. Other stockholders, whose loyalties are unknown, will be voting the remaining 22,998 shares. The company uses cumulative voting.

 

(a)   How many directors can Mr. Clark be sure of electing? (Round down your answer to the nearest whole number.)

 

  Number of directors

 

(b)   How many directors can Ms. Ramsey and her friends be sure of electing? (Round down your answer to the nearest whole number.)

 

  Number of directors

 

(c-1) How many directors could Mr. Clark elect if he obtains all the proxies for the uncommitted votes?(Round down your answer to the nearest whole number.)

 

  Number of directors

 

(c-2) Will he control the board?
No
Yes

 

 

7.

value:
1.00 points

 

Problem 17-11 Strategies under cumulative voting [LO2]

Mr. Michaels controls proxies for 39,000 of the 72,000 outstanding shares of Northern Airlines. Mr. Baker heads a dissident group that controls the remaining 33,000 shares. Baker has 231,000 votes (33,000 × 7). There are seven board members to be elected and cumulative voting rules apply. Michaels does not understand cumulative voting and plans to cast 100,000 of his 273,000 (39,000 × 7) votes for his brother-in-law, Scott. His remaining votes will be spread evenly for three other candidates.

 

How many directors can Baker elect if Michaels acts as described above?

 

  Number of directors

 

8.

value:
1.00 points

 

Problem 17-12 Different classes of voting stock [LO1]

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 9 votes per share. The normally traded common stock, designated as Class B, is entitled to 1 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 1,750,000 total shares currently outstanding, the original founder’s family owns 52,425 shares.

 

What is the percentage of the founder’s family votes to Class B votes? (Round your answer to 2 decimal places. Omit the “%” sign in your response.)

 

  Percentage of votes  %

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9.

value:
1.00 points

 

Problem 17-14 Procedures associated with a rights offering [LO3]

Computer Graphics has announced a rights offering for its shareholders. Carol Stevens owns 2,200 shares of Computer Graphics stock. Five rights plus $62 cash are needed to buy one of the new shares. The stock is currently selling for $77 rights-on.

 

(a)   What is the value of a right? (Round your answer to 2 decimal places. Omit the “$” sign in your response.)

 

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