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 dividend payments.
a. How much in total dollars is the company behind in its payments? $20,460,000
b. The firm proposes to offer new common stock to the preferred stockholders to wipe out the deficit. the common stock will pay the following dividends over the next four years D1-$1.15, D2-$1.25, D3-$1.35, D4-$1.45 the company anticipates earnings per share after 4 years will be $4.09 with a p/e ratio of 10. The common stock will be valued s the present value dividends plus the present value of the future stock price after four years. The discount rate used is 14%. round to 2 places to the right of the decimal. What is the calculated value of the common stock?
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 ?