Question

Divac’s preferred stock is $100 par, 8% stock. If the stock is liquidated or redeemed, stockholders are entitled to $120 per share. There are no dividends in arrears on the stock. The common stock has a par value of $10 per share. Assume that the common stockholders have a right to the total net income of $74,000.

Answer 1

Answer:

1. 59.21%

2. $15.98

Explanation:

Note: The table is attached as picture below

Required: "1. Determine the dividend payout ratio for the common stock 2. Determine the book value per share of Divac’s common stock."

1. Dividend Payout Ratio = Cash Dividend / Net Income * 100

Dividend Payout Ratio = 45,000 / 76,000 * 100

Dividend Payout Ratio = 59.21052631578947%

Dividend Payout Ratio = 59.21%

2. Number of Shares for Preferred Stock = Total Value of Preferred Stock / Par Value Per Share of Preferred Stock

Number of Shares for Preferred Stock = 110,000 /100

Number of Shares for Preferred Stock = 1,100

Liquidation Value of Preferred Stock = Number of Shares of Preferred Stock * Liquidation Price Per Share

Liquidation Value of Preferred Stock = 1,100 * 120

Liquidation Value of Preferred Stock = 132,000

Total Stockholders' Equity ′ = Preferred Stock + Paid in Capital Preferred + Common Stock + Paid in Capital Common + Retained Earnings

Total Stockholders' Equity = 110,000 + 55,000 + 500,000 + 50,000 + 216,000

Total Stockholders' Equity = 931,000

Net Assets Applicable to Common Stock = Total Stockholders' Equity -  Liquidation Value of Preferred Stock

Net Assets Applicable to Common Stock = 931,000 - 132,000

Net Assets Applicable to Common Stock = 799,000

Number of Shares of Common Stock = Total Value of Common Stock / Par Value Per Share of Common Stock

Number of Shares of Common Stock = 500,000 / $10

Number of Shares of Common Stock = 50,000

Book Value Per Share = Net Assets Applicable to Common Stock / Number of Shares of Common Stock Net Assets Applicable to Common Stock

Book Value Per Share = 799,000 / 50,000

Book Value Per Share = $15.98

So therefore, the Book Value Per Share is $15.98 per share