Raphael Corporation’s common stock is currently selling on a stock exchange at $85 per share, and its

current balance sheet shows the following stockholders’ equity sections:

Preferred stock – 5% cumulative, $50 par value, 1000 shares

Authorized, issued, and outstanding $50,000

Common stock - $20 par value, 4,000 shares

Authorized, issued and outstanding $80,000

Retained earnings $150,000

Total stockholders’ equity $280,000

Part 1

What is the current market value (price) of the corporation’s common stock?

Market value $85

Part 2

What are the par values of the corporation’s preferred stock and its common stock?

Preferred stock ($50,000 ÷ 1000) Par value $50

Common stock ($80,000 ÷ 4000) Par value $20

Part 3

If no dividends are in arrears, what are the book values per share of the preferred stock and the
common stock?

stockholders equity
Book value = $280,000 ÷ 1,000 = $280
Number of preferred shares

stockholders equity
Book value = $280,000 ÷ 4,000 = $70
Number ofcommon shares
Steven – I have a different take:

3. Book values with no dividends in arrears

Book value per preferred share = par value (when not callable) = $50

Common stock
Total equity................................................ $280,000
Less equity for preferred.......................... (50,000)
Common stock equity............................... $230,000

Number of outstanding shares................ 4,000

Book value per common share................ $ 57.50 ($230,000 / 4,000 shares)

Part 4

If two years’ preferred dividends are in arrears, what are the book values per share of the preferred
stock and the common stock?

Preferred dividends in arrears (1,000 x $50 x 5% x 2 yrs) $5,000

Preferred stock value (1,000 x $50) $50,000

Stockholders total equity to preferred stock ($50,000 + $5,000) $55,000

Preferred stock outstanding 1,000

Preferred stock book value (1,000 ÷ $55,000) $55

stockholders equity – equity of preferred stock

Book value of common stock =
number of common shares outstanding

$ 280,000−$ 55,000
= $56.25
$ 4,000

Book value per share of common stock $56.25

 Part 5

If two years’ preferred dividends are in arrears and the preferred stock is callable at $55 per share, what
are the book values per share of the preferred stock and the common stock?

Preferred dividends in arrears (1,000 x $50 x 5% x 2 yrs) $5,000

Preferred stock value (1,000 x $55) $55,000

Stockholders total equity to preferred stock ($55,000 + $5,000) $60,000

Preferred stock outstanding 1,000

Preferred stock book value (1,000 ÷ $60,000) $60

stockholders equity – equity of preferred stock

Book value of common stock =
number of common shares outstanding

$ 280,000−$ 60,000
= $55.00
$ 4,000

Book value per share of common stock $55.00

Part 6

If two years’ preferred dividends are in arrears and the board of directors declares cash dividends of
$11,500, what total amount will be paid to the preferred and to the common stockholders? What is the
amount of dividends per share for the common stock?

Dividends declared $11,500

Dividends in arrears (1,000 x $50 x 5% x 2 yrs) $5,000

Current year dividends (1,000 x $50 x 5%) $2,500

Dividends to preferred stockholders ($5,000 + $2,500) $7,500

Dividends to common stockholders ($11,500 - $7,500) $4,000

common shareholder dividends

Dividends per share of common stock =
number of common shares

$ 4,000
= $1.00
4,000

Dividends per share of common stock $1.00

 Part 7

What are some factors that can contribute to a difference between the book value of common stock and
its market value?

Some factors that contribute to the difference between the book value and the market value
are; expected future earnings, dividends, growth, and other company and economic factors.