Robbins Petroleum Company is six years in arrears on cumulative preferred stock dividends. There are 770,000...

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Robbins Petroleum Company is six years in arrears on cumulativepreferred stock dividends. There are 770,000 preferred sharesoutstanding, and the annual dividend is $9.50 per share. TheVice-President of Finance sees no real hope of paying the dividendsin arrears. She is devising a plan to compensate the preferredstockholders for 80 percent of the dividends in arrears.

a. How much should the compensation be?(Do not round intermediate calculations. Input your answerin dollars, not millions (e.g. $1,234,000).)

b. Robbins will compensate the preferredstockholders in the form of bonds paying 12 percent interest in amarket environment in which the going rate of interest is 14percent for similar bonds. The bonds will have a 15-year maturity.Using the bond valuation Table 16-2, indicate the market value of a$1,000 par value bond. (Round your answer to the nearestwhole number.)

c. Based on market value, how many bonds must beissued to provide the compensation determined in part a?(Do not round intermediate calculations and round youranswer to the nearest whole number.)

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3.7 Ratings (310 Votes)

aAmount of compensation to the preferred stockholders Compensation Number of Preferred Stock x Dividend per share x Number of arrear years x Percentage of Payment 770000 Shares x 950 per share x 6 Years x 80 43890000 x 80 35112000 The Amount of See Answer

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Robbins Petroleum Company is six years in arrears on cumulativepreferred stock dividends. There are 770,000 preferred sharesoutstanding, and the annual dividend is $9.50 per share. TheVice-President of Finance sees no real hope of paying the dividendsin arrears. She is devising a plan to compensate the preferredstockholders for 80 percent of the dividends in arrears.a. How much should the compensation be?(Do not round intermediate calculations. Input your answerin dollars, not millions (e.g. $1,234,000).)b. Robbins will compensate the preferredstockholders in the form of bonds paying 12 percent interest in amarket environment in which the going rate of interest is 14percent for similar bonds. The bonds will have a 15-year maturity.Using the bond valuation Table 16-2, indicate the market value of a$1,000 par value bond. (Round your answer to the nearestwhole number.)c. Based on market value, how many bonds must beissued to provide the compensation determined in part a?(Do not round intermediate calculations and round youranswer to the nearest whole number.)