Question

PA11-4 Comparing Stock and Cash Dividends [LO2, LO3, LO4]

Ritz Company had the following stock outstanding and Retained earnings at December 31, 2010:


Common stock (par $1; outstanding, 500,000 shares) $ 500,000
Preferred stock, 8% (par $10; outstanding, 21,000 shares) 210,000
Retained earnings 900,000


On December 31, 2010, the board of directors is considering the distribution of a cash dividend to the common and preferred stockholders. No dividends were declared during 2008 or 2009. Three independent cases are assumed:

Case A:

The preferred stock is noncumulative; the total amount of 2010 dividends would be $30,000.
Case B:

The preferred stock is cumulative; the total amount of 2010 dividends would be $30,000. Dividends were not in arrears prior to 2008.
Case C: Same as Case B, except the amount is $75,000.

Answer 1

aphael Corporation’s common stock is currently selling on a stock exchange at $85 per share, and its current balance sheet shows the following stockholders’ equity section:


Preferred stock—5% cumulative, $___ par value, 1,000 shares
authorized, issued, and outstanding $ 50,000
Common stock—$___ par value, 4,000 shares authorized, issued,
and outstanding 80,000
Retained earnings 150,000

Total stockholders' equity $ 280,000


Required:
1. What is the current market value (price) of this corporation’s common stock?