Monet, Inc., is authorized to issue 1,500,000 shares of no-par common stock and 800,000 shares of $40 par value 6 percent preferred stock. During its first year of operation, the company plans to issue 800,000 shares of common stock for $6,400,000 and 20,000 shares of its preferred stock for $1,100,000. The company anticipates net income of $550,000 for the year and plans to pay dividends of $150,000 during the year.

What would be the total amount of the company’s shareholders’ equity at the end of the year?

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How much of the company would be financed by contributions by its owners and how much by its operations?

Rembrandt Corporation has 5,000 shares of $100 par value 8 percent cumulative preferred stock included in its total owners’ equity of $1,800,000. Its budgeted income for the period is $300,000.

If the preferred stock has a liquidating value of $400,000, what is the expected return on common equity?


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