Financial Markets and Institutions Ch. 8 HW
Use the information in the following stock quote to calculate McKesson's earnings per share over the last year. Name: McKesson Symbol: MCK Open: 67.00 High: 67.14 Low: 66.28 Close: 66.60 Net Chg: -1.61 %Chg: -2.36 Volume: 2,725,785 53 Wk High: 77.49 55 Wk Low: 59.57 Div: 1.32 Yield: 1.98 PE: 19.00
$3.51 Explanation: E= P / PE E = 66.6/19
Use the information in the following stock quote to calculate Abercrombie & Fitch's earnings per share over the last year. Name: Abercrombie & Fitch Symbol: ANF Open: 31.89 High: 32.41 Low: 31.20 Close: 31.60 Net Chg: -1.41 %Chg: -4.27 Volume: 2,337,747 53 Wk High: 45.12 55 Wk Low: 22.76 Div: 0.90 Yield: 2.85 PE: 49.29
$.63 Explanation: E= P / PE E = 31.2/49.29
Suppose a firm has 16.7 million shares of common stock outstanding and five candidates are up for election to four seats on the board of directors. a. If the firm uses cumulative voting to elect its board, what is the minimum number of shares needed to ensure election to the board? b. If the firm uses straight voting to elect its board, what is the minimum number of votes needed to ensure election to the board?
a. 13,360,001 b. 8,350,001 Explanation: a. With cumulative voting, the total number of votes available is 66,800,000 (= 16.7 million shares outstanding × 4 directors). If there are eight candidates for the four board positions, the four candidates with the highest number of votes will be elected to the board and the candidates with the least total votes will not be elected. In this example, the minimum number of votes needed to ensure election is one fifth of the 66,800,000 million votes available plus one to break any ties, or 13,360,001 votes. If one candidate receives 13,360,001, the remaining votes together total 53,439,999. No matter how these votes are spread over the remaining 4 director candidates, it is mathematically impossible for each of the 4 to receive more than 13,360,001. This would require more than 4 × 13,360,001 votes, or more than the 53,439,999 votes that remain. b. With straight voting, the vote on the board of directors occurs one director at a time. Thus, the number of votes eligible for each director is 16,700,000, the number of shares outstanding. The minimum number of votes needed to ensure election is one half 17 million votes available, or 8,350,000. To avoid any ties, one would actually require one more vote than 8,350,000.
Suppose you own 72,000 shares of common stock in a firm with 3.6 million total shares outstanding. The firm announces a plan to sell an additional 1.8 million shares through a rights offering. The market value of the stock is $34 before the rights offering and the new shares are being offered to existing shareholders at a $4 discount. a. If you exercise your preemptive rights, how many of the new shares can you purchase? b. What is the market value of the stock after the rights offering? c-1. What is your total investment in the firm after the rights offering? c-2. If you exercise your preemptive right how many original shares and how many new shares do you have? d-1. If you decide not to exercise your preemptive rights, what is your investment in the firm after the rights offering? d-2. If you sell your rights rather than use them, how much money will you receive from the rights sale and what is the total value of your proceeds from the sale of the rights offering plus your investment in the firm?
a. 36,000 b. $176.4 million c-1. $3.53 million c-2. 72,000 original shares; 36,000 new shares d-1. $2.352 million d-2. $0.096 million sale of rights; $2.448 million total investments Explanation: You own 72,000 shares of common stock in a firm with 3.6 million total shares outstanding. The firm announces its plan to sell an additional 1.8 million shares through a rights offering. Thus, each shareholder will be sent 0.5 rights for each share of stock owned. One right can then be exchanged for one share of common stock in the new issue. a. Your current ownership interest is 2 percent (72,000/3.6 million) prior to the rights offering and you receive 36,000 rights (72,000 × 0.5) allowing you to purchase 36,000 of the new shares. If you exercise your rights (buying the 36,000 shares) your ownership interest in the firm after the rights offering is still 2 percent ((72,000 + 36,000)/(3.6 million + 1.8 million)). b. The market value of the common stock is $34 before the rights offering, or the total market value of the firm is $122.4 million ($34 × 3.6 million), and the 1.8 million new shares are offered to current stockholders at a $4 discount, or for $30 per share. The firm receives $54 million. The market value of the firm after the rights offering is $176.4 million (the original $122.4 million plus the $54 million from the new shares), or $32.667 per share ($176.4 million/5.4 million). c-1 & c-2. Your 72,000 shares are worth $2.45 million ($34 × 72,000) before the rights offering, and you can purchase 36,000 additional shares for $1,080,000 ($30 × 36,000). Thus, your total investment in the firm after the rights offering is $3.53 million, or $32.667 per share ($3.53 million/108,000). d-1 & d-2. Your 72,000 shares are worth $2.45 million ($34 × 72,000) before the rights offering. Since each right allows a stockholder to buy a new share for $30 per share when the shares are worth $32.667, the value of one right should be $2.667. Should you sell your rights rather than exercise them, you maintain your original 72,000 shares of stock. These have a value after the rights offering of $2.352 million (72,000 × 32.667). You also sell your rights for $0.096 million (36,000 × $2.667). You have a total of $2.448 million, or have lost no wealth.
