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Robbins Petroleum Company is four years in arrears...

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Robbins Petroleum Company is four years in arrears on cumulative preferred stock dividends. There are 850,000 preferred shares outstanding, and the annual dividend is $6.50 per share. The vice-president of finance sees no real hope of paying the dividends in arrears. She is devising a plan to compensate the preferred stockholders for 90 percent of the dividends in arrears. a. How much should the compensation be? b. Robbins will compensate the preferred stockholders in the form of bonds paying 12 percent interest in a market environment in which the going rate of interest is 14 percent for similar bonds. The bonds will have a 15-year maturity. Using the bond valuation table in Chapter 16 (Table 16?3 on page 500), indicate the market value of a $1,000 par value bond. c. Based on market value, how many bonds must be issued to provide the compensation determined in part a? (Round to the nearest whole number.) Solution Problem 17-20 Instructions Enter formulas and functions to calculate the requirements of this problem. Information Dividend per share $6.50 Shares outstanding 850,000 Years in arrears 4 Compensation percentage 90% a. How much should the compensation be? FORMULA b. Robbins will compensate the preferred stockholders in the form of bonds paying 12 percent interest in a market environment in which the going rate of interest is 14 percent for similar bonds. The bonds will have a 15-year maturity. Using the bond valuation table in Chapter 16 (Table 16?3 on page 500), indicate the market value of a $1,000 par value bond. Bond value FORMULA c. Based on market value, how many bonds must be issued to provide the compensation determined in part a? (Round to the nearest whole number.) FORMULA

 

Paper#11872 | Written in 18-Jul-2015

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