How does the preemptive right provision protect stockholders from dilution? Show an example.

Computer Graphics has announced a rights offering to its shareholders.

Carol Stevens owns 1,200 shares of Computer Graphics stock. Four rights plus $60 cash are needed to buy one of the new shares. The stock is currently selling for $72 rights-on.

(a) What is the value of a right?

(b) How many of the new shares could Carol buy if she exercised all her rights?

How much cash would this require?

Carol does not know if she wants to exercise her rights or sell them. Would either alternative have a more positive effect on her wealth?

Does it make sense for a corporation to repurchase its own stock? Explain why or why not. Provide an example of the impact on earnings per share.

Discuss the priority of claims in bankruptcy liquidation. Please discuss the seven steps in priority order.

Sage Book Company is evaluating the two investments shown below. Each will require an initial investment of $50,000. The cost of capital is 13 percent and the cash flows are as follows:

Year Book Binder Printing Shop

1 $10,000 $ 4,000

2 $ 5,000 $ 8,000

3 $15,000 $10,000

4 $ 5,000 $30,000

5 $20,000 $40,000

Which investment would you select using the net present value method? Please show your work.