A company has 500 shares of $50 par value preferred stock outstanding,and the call price of its preferred stock is $60 per share.It also has 20,000 shares of common stock outstanding,and the total value of its stockholders' equity is $680,000.The company's book value per common share equals:

Question

Quizplus · Accepted Answer

To calculate the book value per common share, we need to determine the equity that is available to common shareholders and then divide that by the number of common shares outstanding.First, let's calculate the equity that is allocated to the preferred stock. Since the preferred stock has a par value of $50 and there are 500 shares outstanding, the total par value of preferred stock is:
500 shares * $50 = $25,000
However, the call price is $60 per share, which is the price the company would have to pay to buy back the preferred shares. Therefore, the equity allocated to the preferred stock based on the call price is:
500 shares * $60 = $30,000
Now, let's calculate the total equity available to common shareholders by subtracting the equity of the preferred stock from the total stockholders' equity:
Total stockholders' equity = $680,000
Equity allocated to preferred stock = $30,000
Equity available to common shareholders = Total stockholders' equity - Equity allocated to preferred stock
Equity available to common shareholders = $680,000 - $30,000
Equity available to common shareholders = $650,000
Next, we divide the equity available to common shareholders by the number of common shares outstanding to find the book value per common share:
Equity available to common shareholders = $650,000
Number of common shares outstanding = 20,000 shares
Book value per common share = Equity available to common shareholders / Number of common shares outstanding
Book value per common share = $650,000 / 20,000 shares
Book value per common share = $32.50
Therefore, the book value per common share is $32.50, which corresponds to option B.

A Company Has 500 Shares of $50 Par Value Preferred