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Chapter 5: 9BP-b (page 451)

Question: 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 12 members of the board are up for reelection. Mr. Clark is a dissident stockholder. He controls proxies for 34,001 shares. Ms. Ramsey and her friends on the board control 44,001 shares. Other stockholders, whose loyalties are unknown, will be voting the remaining 24,998 shares. The company uses cumulative voting.

b. How many directors can Ms. Ramsey and her friends be sure of electing?

Short Answer

Expert verified

Answer

The number of directors that Ms. Ramsey and her friends can elect is 5.

Step by step solution

01

Information provided in the question

Step 1: Information provided in the question

Number of directors = 12

Proxies controlled by Ms. Ramsey and her friends = 44,001 shares

02

Calculation of the number of directors that can be elected by Ms. Ramsey and her friends

Step 2: Calculation of the number of directors that can be elected by Ms. Ramsey and her friends

Ms. Ramsey and her friends can elect 5 directors.

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Most popular questions from this chapter

Tyson Iron Works is about to go public. It currently has after-tax earnings of \(4,400,000, and 4,200,000 shares are owned by the present stockholders. The new public issue will represent 500,000 new shares. The new shares will be priced to the public at \)25 per share with a 3 percent spread on the offering price. There will also be $280,000 in out-of-pocket costs to the corporation.

e. Determine what rate of return must be earned on the proceeds to the corporation so there will be a 10 percent increase in earnings per share during the year of going public.

Tyson Iron Works is about to go public. It currently has after-tax earnings of \(4,400,000, and 4,200,000 shares are owned by the present stockholders. The new public issue will represent 500,000 new shares. The new shares will be priced to the public at \)25 per share with a 3 percent spread on the offering price. There will also be $280,000 in out-of-pocket costs to the corporation.

a. Compute the net proceeds to Tyson Iron Works.

The Wrigley Corporation needs to raise \(44 million. The investment banking firm of Tinkers, Evers & Chance will handle the transaction.

  1. If stock is utilized, 2,300,000 shares will be sold to the public at \)20.50 per share. The corporation will receive a net price of \(19 per share. What is the percentage underwriting spread per share?
  2. If bonds are utilized, slightly over 43,700 bonds will be sold to the public at \)1,009 per bond. The corporation will receive a net price of $994 per bond. What is the percentage of underwriting spread per bond? (Relate the dollar spread to the public price.)
  3. Which alternative has the larger percentage of spread? Is this the normal relationship between the two types of issues?

Question: Barton Simpson, the chief financial officer of Broadband Inc. could hardly believe the change in interest rates that had taken place over the last few months. The interest rate on A2 rated bonds was now 6 percent. The \(30 million, 15-year bond issue that his firm has outstanding was initially issued at 9 percent five years ago. Because interest rates had gone down so much, he was considering refunding the bond issue. The old issue had a call premium of 8 percent. The underwriting cost on the old issue had been 3 percent of par, and on the new issue it would be 5 percent of par. The tax rate would be 30 percent and a 4 percent discount rate would be applied for the refunding decision. The new bond would have a 10-year life. Before Barton used the 8 percent call provision to reacquire the old bonds, he wanted to make sure he could not buy them back cheaper in the open market.

a. First compute the price of the old bonds in the open market. Use the valuation procedures for a bond that were discussed in Chapter 10 (use annual analysis). Determine the price of a single \)1,000 par value bond.

Question: The trustee in the bankruptcy settlement for Titanic Boat Co. lists the following book values and liquidation values for the assets of the corporation. Liabilities and stockholders’ claims are also shown.

Assets

Book value

Liquidation value

Accounts receivables

\(1,400,000

\)1,200,000

Inventory

\(1,800,000

\)900,000

Machinery and equipment

\(1,100,000

\)600,000

Building and plant

\(4,200,000

\)2,500,000

Total assets

\(8,500,000

\)5,200,000

Liabilities and stockholder’s claims

Liabilities

Accounts payable

\(2,800,000

First lien, secured by machinery and equipment

\)900,000

Senior unsecured debt

\(2,200,000

Subordinated debenture

\)1,700,000

Total liabilities

\(7,600,000

Stockholder’s claims

Preferred stock

\)250,000

Common stock

\(650,000

Total stockholder’s claims

\)900,000

Total liabilities and stockholder’s claims

$8,500,000

d. After the machinery and equipment are sold to partially cover the first lien secured claim, how much will be available from the remaining asset liquidation values to cover unsatisfied secured claims and unsecured debt?
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