Question

Hoyt Corp.'s current balance sheet reports the following stockholders' equity:5°/o cumulative preferred stock, par value $100 per share;2,500 shares issued and outstanding $250,000Common stock, par value $3.50 per share; 100,000 shares issued and outstanding 350,000Additional paid-in capital in excess of par value of common stock 125,000Retained earnings 300,000Dividends in arrears on the preferred stock amount to $25,000. If Hoyt were to be liquidated, the preferredstockholders would receive par value plus a premium of $50,000. The book value per share of common stockIS:a. $7.75b. $7.50c. $7.25d. $7.00

Answer 1

Answer:

b. $7.50

Explanation:

preferred:

2,500 x $100 =         $  250,000

Common Stock:

100,000 x 3.5 =        $  350,000

Adiitional Paid-in:     $   125,000

Retained Earnings:   $  300,000

$25,000 unpaid dividends Preferred Stock

The common stock will be the valeu after the preferred stock, so we will decrease the unpaid dividend from the RE

350,000 + 125,000 + (300,000 - 25,000) = 750,000

Then we do 750,000/100,000 = 7.5 Book value per share

The liquidation premium should not be considered as the company is not intended to go bankrupcy