18. National Health Corporation (NHC) has a cumulative preferred stock issue outstanding, which has a stated annual dividend of $8 per share. The company has been losing money and has not paid preferred dividends for the last five years. There are 350,000 shares of preferred stock outstanding and 650,000 shares of common stock.
a. How much is the company behind in preferred dividends?
b. If NHC earns $13,500,000 in the coming year after taxes but before dividends, and this is all paid out to the preferred stockholders, how much will the company be in arrears (behind in payments)? Keep in mind that the coming year would represent the sixth year.
c. How much, if any, would be available in common stock dividends in the coming year if $13,500,000 is earned as explained in part b?
Preferred stock dividends in arrears (LO17-5)
6. Assume the following financial data for the Noble Corporation and Barnes Enterprises:
|
|
Noble Corporation
|
Barnes Enterprises
|
|
Total earnings
|
$1,820,000
|
$5,620,000
|
|
Number of shares of stock outstanding
|
650,000
|
2,810,000
|
|
Earnings per share
|
$2.80
|
$2.00
|
|
Price-earnings ratio (P/E)
|
20×
|
28×
|
|
Market price per share .
|
$56
|
$56
|
a. If all the shares of the Noble Corporation are exchanged for those of Barnes Enterprises on a share-for-share basis, what will postmerger earnings per share be for Barnes Enterprises? Use an approach similar to that in Table 20-3.
b. Explain why the earnings per share of Barnes Enterprises changed.
c. Can we necessarily assume that Barnes Enterprises is better off after the merger?
Impact of merger on earnings per share (LO20-3)