Cavalier Corp's articles of incorporation authorize the firm to issue 500,000 shares of S5 par value common stock, of which 325,000 shares have been issued. Those shares were sold at an average 12% over par. In the quarter that ended last week. Cavalier earned $260,000 net income; 4 percent of that income was paid as a dividend. Prior to the close of the books, Cavalier has $3, 545,000 in retained earnings. The company owns no treasury stock.
1. Calculate the book value of equity.
2. Now the company sells 25,000 newly issued shares at a price of $4 per share. Par value of the shares is $5. What will be the book value of equity after the issue?