4-1 The LeCompte Corporation’s equity portion of its balance sheet has the following information.

LeCompte Corporation: Stockholder’s Equity, December 31, 1990

Common Stock 500,000 shares, $1 par, 300,000 shares issued $300,000

Additional Paid-in Capital 121,000

Retained Earnings 68,000

Total Stockholder’s Equity $489,000

However, you, as a recent business graduate, know that the firm has 60,000 shares of treasury stock
which was purchased last year at a price of $2.42 per share. What is the correct total Stockholder’s
Equity for LeCompte Corporation?

4-2 Gravelle Research Corporation has the current balance sheet entries for its stockholder’s equity.

Gravelle Corporation: Stockholder’s Equity, December 31, 1990

Common Stock: 1,000,000 shares authorized, $2 par,

500,000 shares issued $1,000,000

Additional Paid-in Capital 450,000

Retained Earnings 5,840,000

Total Stock holder’s Equity $7,290,000

Gravelle’s management has decided to issue 120,000 shares of stock. They feel that the stock can be
sold for $45 per share. Change the above Equity accounts to reflect the sale of stock.

4-4 Bulls-Eye Stores, Inc., has 2,000,000 common shares outstanding. The share price is currently $20,
and the annual dividend paid at the end of the year will be $0.75 share. What is your expected rate of
return on a share if you expect the share price to be $22.50 at the end of the year?

4-5 One year ago, you purchase 100 shares of Pacific Oil for $25 each. The annual dividend per share
was $1, and the share price today is $27. On the same day you purchased your shares, your brother
purchased 100 shares of Georgia Edison for $15 per share. The annual dividend per share was $2.30,
and the share price today is $14.50. Who earned a greater rate of return, you or your brother?

4-6 Your broker told you that she expects Trans-Earth Airlines common shares to earn a 20% return
during the coming year. The share price is currently$15, and the dividend is expected to be $0.50 per
share. What does your broker expect the share price to be at the end of the year?
4-7 Sergeant Motor’s common shares are trading for $30 each. You expect annual dividend is (paid at
the end of the year) to be constant at $1 for the next four years. If you expect a 15% return on your
investment, what must you expect the share price to be in four years?

4-8 The TLL Corporation has announced that it will keep its annual dividend at $1.50 forever. If a share
costs $10, what rate of return are you earning?

4-9 The Midwest Grain Company pays an annual dividend of $1.80 and is expected to do so
permanently. If you require a 15% return on your investment, how much will you be willing to pay for a
share?

4-10 The Libre Noir Referral Service is about to go public. You expect the end-of-the-year dividend to be
$1.20, and you require an 18% return to buy the shares. How much will you be willing to pay for a share
if you expect dividends to grow indefinitely at an annual rate of 10%?

4-12 C-Paul Restaurant has common shares outstanding that are currently trading for $12 each. You
expect the end-of-the-year dividend to be $0.80 and for dividends to grow indefinitely at a rate of 6%.
What rate of return do you anticipate on the stock?

4-13 A friend of yours is incorporating her business, the Office Box. She has promised to pay a $1 annual
dividend at the end of e3ach of the next three, years, with dividends to grow at an annual rate of 8%
thereafter. How much will you be willing to pay for a share if you require a 14% rate of return?