1. A venture capitalist company had invested in five new businesses during the last year. The results at the end of one year were as follows: Business A: Loss $500,000, Business B: Loss 900,000, Business C: Loss 250,000, Business D: Loss 50,000, Buisness E: Profit 2,500,000.
a. what did the total losses amount to for the year?
b. what was the net gain or loss for the year?
c. is it possible that by the end of the second year Business A, B, C, and D might earn a profit?
2. the assets of the rosemont corporation are $750,000; the accounts payable, $45,000; bonds payable, $100,000; common stock, $350,000; preferred stock, $150,000. Does the corporation have a surplus or a deficit? Of what amount?
Assets Liabilities and Capital 7% preferred stock
Cash 37,000 Notes payable 2,000 Authorized 100,000
Notes receivable 1,000 Accounts payable 7,000 Unissued 20,000
Accounts receivable 15,000 6% bonds payable 50,000 Outstanding 80,000
Merchandise 70,000 Common stock: Retained Earnings 16,000
Equipment 16,000 Authorized 100,000 Total Liab. and Capital 235,000
Real Estate 96,000 Unissued 20,000
Total assets 235,000 Outstanding 80,000
3. Refer to the balance sheet
a. If the par balue of both common and preferred stock is $100 a share, how many shares of each kind are outstanding?
b. If the preferred and common stock shares have equal claims, what is the book value of each share?
c. If the directors decide to distribute 9,600 as dividendes, how much will be paid to preferred stockholders and how much to common stockholders?
d. If a stockholder owns 10 shares of preferred stock and 10 shares of common stock, how much of the dividends in (c) should the person receive?
4. Dave Ambrose and Barb Maiels each own 2,000 shares of stock, representing all of the common stock outstanding in a rural bottled gas company. They need 20,000 and have three choices of securing the funds: (a) borrowing 20,000 for a period of three months, april, may, and june and again for a period of three months, october, november, and december at a yearly interest rate of 12%. (b) selling 2,000 additional shares of common stock at $10 each to raise a total of 20,000 for permanent working capital. (c) selling 2,000 shares of preferred stock at $10 a share with a dividend rate of 14 percent. In other words these owners are faced with a need for cash to finance their operation, and they must decide whether to borrow the money, to sell common stock, or to sell preferred stock. Assume that the profit of the company is 36,000 a year without anticipating any interest charges.
a. how will the interest on the borrowed money affect Dave and Barb's profits if 20,000 is borrowed as indicated?
b. How will their profits be affected if 2,000 shares of common stock are sold?
c. How will Barb and Dave's profits be affected if 2,000 shares of preferred stock are sold?
5. The net profit of the Ajax corporation has averaged $60,000 a year. there are 12,000 shares of common stock authorized, but only 6,000 are issued and outstanding. More capital is needed and the owners are considering selling the additional 6,000 shares at $100 a share. It is estimated that the new capital will make it possible to increase the net profit to $90,000.
a. what is the net profit per share now?
b. what is the expected net profit per share is 6,000 new shares are sold?
c. does it appear to be a good action to take?