CanaCo showed the following equity on its December 31, 2020,

CanaCo showed the following equity on its December 31, 2020, balance sheet:

Contributed capital
Preferred shares, $2 non-cumulative Authorized: 50,000
Issued and outstanding: 0............................................................................ $ -0-
Common shares
Authorized: Unlimited Issued and outstanding: 50,000 ........................... 6,800,000
Total contributed capital ........................................................................... $ 6,800,000
Retained earnings.......................................................................................... 3,800,000
Total equity ................................................................................................ $10,600,000


The shareholders of CanaCo expressed concerns to the board of directors at the recent annual meeting that the market price of their shares has not changed significantly over the past 18 months, yet the company is very profitable. Profit for each of the past three years has been $1,800,000, $2,300,000, and $3,500,000, respectively.

Cash dividends were paid in each of these years equal to 50% of profit.


Required

Using the elements of critical thinking described on the inside front cover, comment. Consider the following subheadings to organize your response, and try to really think about the complexity of share prices. What really will affect share prices?

• Problem

• Goal

• Principles

• Facts

• Conclusions