Problem
Nicole has been financing Nicole's Getaway Spa (NGS) using equity financing. Currently NGS has authorized 100,000 no-par preferred shares and 200,000 $2 par common shares. Outstanding shares include 52,000 preferred shares and 42,000 common shares.
Recently the following transactions have taken place.
a. NGS issues 1,100 preferred shares for $13 a share.
b. NGS repurchases 1,100 common shares for $12 a share.
c. On November 12, 2014, the board of directors declared a $0.30 cash dividend on each outstanding preferred share.
d. The dividend is paid December 20, 2014.
1. If you were a common shareholder concerned about your voting rights, would you prefer Nicole to issue additional common shares or additional preferred shares?
2. Show the overall effect of each transaction on the assets, liabilities, and shareholders' equity of the company.
3. How would each transaction affect the ROE ratio?