Question

Question: Enterprise Storage Company has \(440,000 shares of cumulative preferred stock outstanding, which has a stated dividend of \)7.75. It is six years in arrears in its dividend payments.

c. How many shares of common stock must be issued at the value computed in part b to eliminate the deficit (arrearage) computed in part a? Round to the nearest whole number.

Short answer

Answer

The company must issue 730,714 shares.

Step-by-step solution

Step-by-step solutionStep 1: Information available

Dividend in arrears = $20,460,000

Value of stock price = $28

Calculation of the number of shares to be issued

The company should issue 730,714 shares.

$\begin{array}{c}\mathbf{Number}\mathbf{}\mathbf{of}\mathbf{}\mathbf{shares}\mathbf{=}\frac{\mathbf{Dividend}\mathbf{}\mathbf{in}\mathbf{}\mathbf{arrears}}{\mathbf{Value}\mathbf{}\mathbf{of}\mathbf{}\mathbf{share}}\\ \mathbf{=}\frac{\mathbf{\$}\mathbf{20}\mathbf{,}\mathbf{460}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{28}}\\ \mathbf{=}\mathbf{730}\mathbf{,}\mathbf{714}\end{array}$