USLS - SOLUTIONS: SAMPLE PROBLEMS
RIGHTS OF STOCKHOLDERS
Sample Problem - Preemptive Right
Moon, Inc. is a family owned corporation with an authorized capital stock of
P20million, P20 par value. Seventy five percent of the authorized were subscribed
and paid. May owns one half of the issued stocks. June holds an equivalent of fifty
percent of what May owns; and Julie owns an equivalent to seventy five percent of
what June holds; the balance to other stockholders.
The board of Moon, Inc. declared an additional issuance of stock for
subscription of 60% of the unissued capital stock. This will allow all stockholders to
exercise their preemptive right. The subscription price is 50% above par value.
Required:
1. How many shares are offered for subscription? How much cash can be generated
from this subscription?
2. If May, June and Julie will exercise their rights to subscribe, what is the maximum
number of shares each can subscribed? How much cash maybe realized from each
subscription?
3. Assuming that May, June and Julie will not exercise their preemptive rights, and
their rights will be exercised by other stockholders, what is the percentage of their
holdings in firm after the subscription
4. Assuming that only June will not subscribe and his subscription will be offered to
other stockholders, what is the percentage holdings of May, June and Julie in the
firm?
5. Assuming May will not subscribe and her subscription will be taken both by June
and Julie in proportion to their holdings before subscription, what will be the
percentage holdings of May, June and Julie in the firm.
Solution:
1. How many shares are offered for subscription? How much cash can be generated
from this subscription?
Total authorized shares: P20million/P20 par value = 1,000,000 shares
Issued shares: 1,000,000 shares x 75% = 750,000 shares
Subscribed shares: 60% of unissued capital stock - 250,000 x 60%= 150,000 shs.
Cash generated from this subscription: 150,000 x P30 (P20 x 150%)=P 4.5million
No. 2
Present If subscribed No.3 No.4 No.5
Holdings % # of shares Amount % % %
May…… 375,000 50.0% 75,000 P2,250,000 41.67% 50.00% 41.67%
June ….. 187,500 25.0% 37,500 1,125,000 20.83% 20.83% 29.76%
Julie …… 140,625 18.75% 28,125 843,750 15.625% 18.75% 22.32%
Others …. 46,875 6.25% 9,375 281,250 21.875% 10.42% 6.25%
Total 750,000 100.00% 150,000 P4,500,000 100.00% 100.00% 100.00%
Activtiy no. 2 - Right to Dividends - Dividend Yield
Capital structure of Devy Corporation:
12% Preferred stock, Non-cumulative, participating, P20 par, 20,000 shares
10% Preferred stock, Cumulative, non-participating, P20 par, 30,000 shares
8% Preferred stock, Cumulative, participating, P20 par, 30,000 shares
Common stock, P50 par, 40,000 shares
During the current year, the board declared an amount of P500,000 as cash
dividends. It has been noted that no dividends were declared last year. At the time the
declaration of dividends, the maket price of Devy stock, follows:
12% Preferred stock, P20.50 per share
10% Preferred stock, P21.00 per share
8% Preferred stock, P22.00 per share
Common stock, P50.50 per share
Required:
a. Distribute the cash dividends to common and among the preferred shareholders
b. Compute for dividend per share for common and preferred shares
c. Compute for dividend yield for common and preferred shares of stock
d. Rank your investment priorities
20,000S 30,000S 30,000S 40,000 S
12% PS 10%PS 8% PS
Total P, Non Cum NP, Cum P, Cum Common
Arrears P108,000 P 0 P 60,000 P48,000 P0
Current 316,000 48,000 60,000 48,000 160,000
Balance 76,000 10,133 0 15,200 50,667
Total P500,000 P58,133 P120,000 P111,200 P210,557
Div/share P 2.91 P4.00 P3.71 P5.27
Div. Yield 14.20% 19.05 16.86 10.43%
Activity no. 3 - Cumulative Voting:
Pinas Corp. has an authorized capital stock of P20 million with P50 par value,
of which 75% were issued and outstanding. Mabuhi and his group owned 70% of the
outstanding capital stock and the rest in the hands of the minority group, the Paktay.
During the stockholders meeting, eleven (11) seats of board of directors will be
elected.
Required:
1. The total seats allowed to the the Mabuhi group
2. The number of shares needed by the Paktay group to have three seats in the
board.
3. Additional number of shares needed by Mabuhi group to have all the seats in the
board.
4. The number of seats allowed to Paktay group.
5. Additional number of shares required for the Paktay group to have four
representative in the board.
*Cumulative Voting:
No. Of Shares needed to ensure number of seats in the board:
# of shares = (S x D / T + 1) +1
No. Of Seats in the Board = # of shares held - 1 x # of directors elected + 1
# of shares outstanding
S = Total of shares outstanding
D = Desired no. Of Seats
T = Total no. Of Directors Elected
ACS - P20m / P50 = 400,000 shares
Issued and outstanding: 400,000 shares x 75% = 300,000 shares
Mabuhi - 300,000 x 70% = 210,000 shares; Paktay - 300,000 x 30% = 90,000
1. Number of seats allowed to Mabuhi group
210,000 - 1 (11+1) /300,000 = 8.4 or 8 seats
2. Number of shares needed by Paktay to have 3 seats
3 x 300,000 / 11 +1 + 1 = 75,001 shares
3. Additional number of shares needed by Mabuhi to have all seats in the board
300,000 x 11 /11 +1 + 1 = 275,001 - 210,000 = 65,001 shares
4. Number of seats allowed to Paktay group
90,000 - 1 (11 + 1) / 300,000 = 3.6 or 3 seats
5. Additional number of shares required for Paktay group to have 4 seats
300,000 x 4 /11+1 +1 = 100,001 shares - 90,000 = 10,001 shares
