Assuming the Corporation earns a P8IT of $ 98,000 in the year 2016, and it has to pay income tax @30%, how much is profit available for distribution to stock holders.

Asiatic Corporation is registered for implementing a project which requires an investment of $ 1,000,000 in the year 2015. The split of Capital for collecting funds from public is planned as follows: 40% of the total investment, through issue of Ordinary Stock.

30%, through issue of Preferred Stock (irredeemable) and the remaining 30% through redeemable bonds which mature after 5 years.

After studying the prevailing market rates for borrowings, it is decided that Interest is payable for bonds @7% per annum. The par value of one bond has to be $100. A trend of increasing demand for bonds is noticed in the capital market as investors prefer safety for return, in the context of dwindling oil prices. So it is decided that the bonds can be sold at a premium of 10%.

As to preferred stock, it is decided that 12% dividend has to be offered. It has a par value of $ 50 and is proposed to be issued at a discount of 5%, considering the fact that it cannot sold otherwise, as it is irredeemable.

Ordinary stock is proposed to be sold at par and the par value is $ 10 per share.

The promoters are the people behind Asian Paints, which have created a successful saga of growth and penetration in its market. So it is expected that the issue can be floated successfully.

The issue of all the three securities could be done successfully as expected and subscribed in full. The whole amount is duly collected.

Answer rating: 100% (QA)

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