Question

Question:

Answer 1

Answer:

Part 1:

$Book\ value\ per\ share\ of\ the\ preferred=\ 25$

$Book\ value\ per\ share\ of\ the\ common\ stock=\ 17.6428$

Part 2:

$Book\ value\ per\ share\ of\ the\ preferred=\ 28$

$Book\ value\ per\ share\ of\ the\ common\ stock=\ 16.7857$

Explanation:

Part 1: (the book value per share of the preferred and common stock under No preferred dividends are in arrears)

Book value per share of the preferred :

$Book\ value\ per\ share\ of\ the\ preferred=\frac{(Preferred\ Stock+Cumulative\ dividends)}{Number\ of\ shares\ of\ preferred\ stock}$

In our case Cumulative dividends=0

$Book\ value\ per\ share\ of\ the\ preferred=\frac{\ 250000+0}{10000} \\Book\ value\ per\ share\ of\ the\ preferred=\ 25$

Book value per share of the common stock:$Book\ value\ per\ share\ ofthecommonstock=\frac{Stockholder\ equity-Preferred\ Stock-Cumulative\ dividends}{Number\ of\ shares\ of\ preferred\ stock}$In our case Cumulative dividends=0

$Book\ value\ per\ share\ of\ the\ common\ stock=\frac{\ 867500-\ 250000-\ 0}{35000} \\Book\ value\ per\ share\ of\ the\ common\ stock=\ 17.6428$

Part 2:

Annual Preferred Dividend=4%*$25*10,000=$10,000

Three years of preferred dividends are in arrears= 3*Annual Preferred Dividend

Three years of preferred dividends are in arrears= 3*$10000=$30,000

Formula for  the book value per share of the preferred is same as above,so we will direct calculate:

In our case Cumulative dividends=$30,000

Book value per share of the preferred :

$Book\ value\ per\ share\ of\ the\ preferred=\frac{\ 250000+\ 30000}{10000} \\Book\ value\ per\ share\ of\ the\ preferred=\ 28$

Book value per share of the common stock:

Formula for  the book value per share of the common stock is same as above,so we will direct calculate:

$Book\ value\ per\ share\ of\ the\ common\ stock=\frac{\ 867500-\ 250000-\ 30000}{35000} \\Book\ value\ per\ share\ of\ the\ common\ stock=\ 16.7857$