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Chapter 5: 3BP-a (page 567)

Katie Homes and Garden Co. has 10,640,000shares outstanding. The stock is currently selling at $52 per share. If an unfriendly outside group acquired 25percent of the shares, existing stockholders will be able to buy new shares at 30 percent below the currently existing stock price.

a. How many shares must the unfriendly outside group acquire for the poison pill to go into effect?

Short Answer

Expert verified

The unfriendly group must acquire 2,660,000 shares for poison pill to take effect.

Step by step solution

01

Information provided in the question

Share outstanding =10,640,000

Trigger point =25%

02

Calculation of shares that the unfriendly group must acquire

The unfriendly group should acquire 2,660,000shares

Number of shares to be acquiredlocalid="1650266012464" =Total shareslocalid="1650266022188" 脳Trigger point

localid="1650266032161" =localid="1650266088018" 10,640,000localid="1650266041576" 脳localid="1650266126526" 25%

localid="1657868055782" =localid="1650266136862" 2,660,000

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Most popular questions from this chapter

Midland Corporation has a net income of \(19 million and 4 million shares outstanding. Its common stock is currently selling for \)48 per share. Midland plans to sell common stock to set up a major new production facility with a net cost of \(21,120,000. The production facility will not produce a profit for one year, and then it is expected to earn a 13 percent return on the investment. Stanley Morgan and Co., an investment banking firm, plans to sell the issue to the public for \)44 per share with a spread of 4 percent.

b. Why is the investment banker selling the stock at less than its current market price?

Walton and Company is the managing investment banker for a major new underwriting. The price of the stock to the investment banker is \(23 per share. Other syndicate members may buy the stock for \)24.25. The price to the selected dealers group is \(24.80, with a price to brokers of \)25.20. Finally, the price to the public is $29.50.

  1. If Walton and Company sells its shares to the dealer group, what will the percentage return be?
  2. If Walton and Company performs the dealer鈥檚 function also and sells to brokers, what will the percentage return be?
  3. If Walton and Company fully integrates its operation and sells directly to the public, what will its percentage return be?

The trustee in the bankruptcy settlement for Titanic Boat Co. lists the following book values and liquidation values for the assets of the corporation. Liabilities and stockholders鈥� claims are also shown.

Assets

Book value

Liquidation value

Accounts receivables

\(1,400,000

\)1,200,000

Inventory

\(1,800,000

\)900,000

Machinery and equipment

\(1,100,000

\)600,000

Building and plant

\(4,200,000

\)2,500,000

Total assets

\(8,500,000

\)5,200,000

Liabilities and stockholder鈥檚 claims

Liabilities

Accounts payable

\(2,800,000

First lien, secured by machinery and equipment

\)900,000

Senior unsecured debt

\(2,200,000

Subordinated debenture

\)1,700,000

Total liabilities

\(7,600,000

Stockholder鈥檚 claims

Preferred stock

\)250,000

Common stock

\(650,000

Total stockholder鈥檚 claims

\)900,000

Total liabilities and stockholder鈥檚 claims

$8,500,000

d. After the machinery and equipment are sold to partially cover the first lien secured claim, how much will be available from the remaining asset liquidation values to cover unsatisfied secured claims and unsecured debt?

What is the purpose of serial repayments and sinking funds? (LO16-1)

The Hamilton Corporation Company has 4 million shares of stock outstanding and will report earnings of \(6,910,000 in the current year. The company is considering the issuance of 1 million additional shares that can only be issued at \)30 per share.

a. Assume that Hamilton Corporation Company can earn 7.0 percent on the proceeds. Calculate the earnings per share.

b. Should the new issue be undertaken based on earnings per share?
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