Problem 1- Pre-emptive Right

Familia Inc is a family owned corporation with an authorized capital stock of P40 million,
P50 par value. Sixty-five percent of the authorized capital stock were issued shares. Popsy
owned thirty five percent of outstanding capital stock; Momsy holds one half of what Popsy
owned. Sonny owns twenty five percent of the issued capital stock, and Girly holds 50% of what
Sonny held and the rest of the outstanding shares were held by the other members of the family.
The record showed that 20,000 shares were treasury stock.
The board of directors decided to issue additional shares for subscription. Stockholders
are entitled to exercise their pre-emptive rights by buying one share of stock for every two rights
they held. Subscription price is 55.00 per share.

Required:
1. How many shares are offered for subscription? How much cash maybe realized from this
issuance?

Authorized share= P40,000,000 / 50 = 800,000 shares

Issued share= 800,000 x 65%= 520,000 shares
Treasury Shares = (20,000 shares)
Outstanding Share
(520,000-20,000) 500,000 shares
Subscribe share (500,000/2) 250,000 shares
Cash generated (250,000 x P55) P13,750,000

2. If Popsy, Momsy, Sonny and Girly will exercise their right, what is the maximum number
of shares each may subscribed? How much cash maybe realized from each of the four
subscribers?

Popsy = 500,000 x 35% 175,000 35%

Momsy = 175,000/2 87,500 17.5%
Sonny = 520,000 x 25% 130,000 25%
Girly = 130,000/2 65,000 12.5%
Others = 500,000 - 175,000 - 87,500 - 130,000 - 65,000 = 42,500 10 .
TOTAL OUTSTANDING SHARES 500,000 100%

Popsy = 175,000/2 87,500 x 55 = 4,812,500

momsy = 87,500/2 43,750 x 55 = 2,406,250
Sonny = 130,000/2 65,000 x 55 = 3,575,000
Girly = 65,000/2 32,500 x 55 = 1,787,500
Others = 42,500/2 21,250 x 55 = 1,168,750
Total 250,000 x 55 = 13,750,000
3. Assuming Momsy and Girly will not exercise their pre-emptive rights and their shares will
be acquired by Popsy and Sonny, what is the percentage of holdings of the four after the
subscription?

Outstanding Issued Shares 500,000 shs

Additional Subscribed Shares 250,000 shs
TOTAL 750,000 shs

Fraction Allocated
Popsy 175,000 shs 175,000/305,000 (76,250) 43,750 shs
Sonny 130,000 shs 175,000/305,000 (76,250) 32,500 shs
305,000 shs 76,250 shs

Popsy: 175,000+87,500+43,750 = 306,250 shs/750,000 shs = 40.83%

Momsy: 87,500 / 750,000 shs= 11.67%
Sonny: 130,000+65,000+32,500= 227,500 / 750,000 = 30.33%
Girly: 65,000 / 750,000 = 8.67%
Others: 42,500 + 21,250 = 63,750/750,000 shs = 8.5%

4. Assuming Popsy will not subscribe and his shares will be acquired by Momsy, Sonny,
and Girly, what is the percentage holdings of the four after subscription?

Shares fraction allocated

Momsy: 87,500 87,500/282,500 x 87,500 27,102
Sonny: 130,000 130,000/282,500 x 87,500 40,265
Girly: 65,000 65,000/282,500 x 87,500 20,133
Total: 282,500 87,500

Share subscribe
Momsy: 43,750 + 27,102 = 70,852
Sonny: 65,000 + 40,265 = 105,265
Girly: 32,500 + 20,133 = 52,633

Shareholders Present Holdings Subscribe total share percentage of holding

Popsy: 175,000 175,000 23.3333%
Momsy: 87,500 70,852 158,352 21.1136%
Sonny: 130,000 105,265 235,265 31.3687%
Anaki: 65,000 52,633 117,633 15.6844%
Others: 42,500 21,250 63,750 8.5000%
Total: 500,000 250,000 750,000 100%
 5. Assuming Popsy, Momsy, Sonny and Girly will not subscribe and their shares will be
taken by the other members of the family, what is the percentage holding of the
stockholders after the subscription?

Shareholders present holdings subscribe total share percentage of holding

Popsy 175,000 175,000 23.3333%
Mmomsy 87,500 87,500 11.6667%
Sonny 130,000 130,000 17.3333%
Anaki 65,000 65,000 08.6667%
Others 42,500 250,000 292,500 39.0000%
Total 500,000 250,000 750,000 100%

Problem 2 - Dividend Policy

CAM-Z Co. ‘s future earnings for the next four years are predicted below. Assuming
there are 500,000 shares outstanding common stock, what will be the yearly dividend per share
be if the dividend policy is as follows:
a.) A constant payout ratio of 40%
b.) A stable peso dividend targeted at 40% of the average earnings over the four-year
period.
c.) Small, regular dividend of P0.75 plus a year-end extra of 40% of the profits exceeding
P10 million.
d.) An annual investment requirement of P1.8 million is to be funded. Capital structure is
50% debt and 50% equity. Residual Dividend policy is established.

Project annual earnings:

1st year = P 900,000
2nd year = P 1,200,000
3rd year = P 850,000
4th year = P 1,350,000

Problem 3. Bond Investment (30 points)

Babes has the following bonds in her investment portfolio:

12 bonds, 5-year, 11% Debenture with a face value of P50,000 acquired at 98 ¾. Interest is due
every April 1, August 1, and Dec. 1
6 bonds, 10-year, 9% mortgage bond with a par value of P25,000 acquired at 102 ¼ . Interest
payable every June 30 and Dec. 30

The Debenture bond has still three years remaining before its maturity, while the
mortgage bond has still 5 years remaining life. Babes acquired the debenture bonds on Oct.1,
2020 and the mortgage bonds on March 31, 2021. Babes sold 5 Debenture bonds to Dari on
March 1, 2021 at 95 ½. Then again she sold to Dari 4 Debenture bonds at par on June 30,
2021. And on October 1, 2021, she sold to Luvly 4 Mortgage bonds at 103 ½.

Required:
1. Total amount paid by Babes on her investment in Debenture and Mortgage bonds.
MORTGAGE:
Principal: 6 x 25,000 x 1.0225 = 153,375
Accrued Interest: 6 x 25,000 x 9% x 3/12 = 3,375 (Dec 30-March 31)
Total Amount= 156,750

DEBENTURE:
Principal: 12 x 50,000 x 0.9875= 592,500
Accrued Interest: 12 x 50,000 x 11% x 2/12= 11,000 (August 1-Sept30)
Total Amount= 603,500

Total amount paid by Joy: 156,750 + 603,500 = 760,250

2. Proceeds from the sale of Babes to Dari of Debenture bonds.

P50,000 x 5 x 0.9550 = P238,750

P50,000 x 5 x 0.11 x 3/12 = P6,875 (December 1 - Feb 28)
P238,750 + P6,875 = 245,625

P50,000 x 4 x 0.9875 = 197,500

P50,000 x 4 x 0.11 x 3/12 = 5,500 ( April 1 - june 30)
P197,500 + P5,500 = P203,000

Sales Price 238,750

Less: carrying amount ((250/600) x 592,500 = 246,875
Loss on sale of bonds ( 8,125 )
Sales price 197,500
Less: Carrying amount ((200/600) x 592,500) 197,500
0

3. Proceeds from sale of Babes Mortgage bonds to Luvly.

P25,000 x 4 x 1.0350 = 103,500

P25,000 x 4 x 0.09 x 3/12 = 2,250 (july 1 - sept 30)
P103,500 + P2,250 = P105,750

Sales price 103,500

Less: carrying amount ((100/150)x 153,375) 102,250
Gain on sale of bonds 1,250
 4. Total income realized by Babes on her bond investments up December 31, 2021.

MORTGAGE
March 31, 2021 to October 1, 2021 = 6 months
6 x 25,000 x 9% x 6/12 = 6,750
October 1, 2021 to December 31, 2021 = 3 months
2 x 25,000 x 9% x 3/12 = 1,125
Gain or loss from sale of bonds 1,250
Profit from mortgage 9,125

DEBENTURE
October 1, 2020 to March 1, 2021 = 5 months
12 x 50,000 x 11% x 5/12= 27,500
March 1, 2021 to June 30, 2021 = 4 months
7 x 50,000 x 11% x 4/12= 12,833
June 30, 2021 to December 31, 2021 = 6 months
3 x 50,000 x 11% x 6/12= 8,250
Loss (8,125)
Profit from debenture 40,458

(balikan lang ni namon bwas cuz it’s budlay but if you know the answer pls answer
thanks.)

Problem 3.2. Bond Investment (30 points)

Bene has the following bonds in his investment portfolio:

10 bonds, 5-year, 13% Debenture with a face value of P25,000 acquired at 98-1/4. Interest is
due every March 31, July 31, and Nov 30.
6 bonds, 10-year, 9% Mortgage bond with a par value of P50,000 acquired at 102-3/4. Interest
payable every June 1 and Dec. 1

The Debenture bond has still two years remaining before its maturity, while the mortgage
bond has still 6 years remaining life. Bene acquired the debenture bonds on Nov.1, 2019 and
the mortgage bonds on March 1, 2020. Bene sold 7 Debenture bonds to Bessy on March 31,
2020 at 93 ½. Then on October 1, 2020, he again sold to Bessy 4 mortgage bonds at 103-½.

Required:
1. Total amount paid by Bene on his investment in Debenture and Mortgage bonds.

Debenture:
25,000 x 10 x 98.25%
25,000 x 10 x 0.9825 = 245,625
 25,000 x 10 x 13% x 3/12 = 8,125 (July 31 to Oct 30)
245,625 + 8,125 = 253,750

Mortgage:
50,000 x 6 x 102.75
50,000 x 6 x 1.0275 = 308,250
50,000 x 6 x 9% x 3/12 = 6,750 (Dec 1-Feb 28)
308,250 + 6,750 = 315,000

Total: 568,750

2. Proceeds from the sale of Bene to Bessy of Debenture bonds and Mortgage bonds.

Debenture:
25,000 x 7 x 93.50%
25,000 x 7 x .9350 = 163,625
25,000 x 7 x .13 x 4/12 = 7,583.33

Sales price: 25,000 x 7 x .9350 = 163,625.00

Original Cost 25,000 x 7 x .9825 = 171,937.50
Loss (8,312.50.00)

Mortgage:
50,000 x 4 x 103.50%
50,000 x 4 x 1.0350 = 207,000
50,000 x 4 x .09 x 4/12 = 6,000

Sales price: 50,000 x 4 x 1.0350 = 207,000

Original cost: 50,000 x 4 x 1.0275 = 205,500
Gain 1,500

3. Total income realized by Bene on his bond investments up December 31, 2020

Debenture
November 1, 2019 to March 31, 2020 (5 months)
25,000 x 10 x .13 x 5/12 = 13,541.67

March 31, 2020 to December 31, 2020 (9 months)

25,000 x 3 x .13 x 9/12 = 7,312.50

Total interest earned: 13,541.67 + 7,312.50 = 20,854.17

 Original cost of bonds sold 25,000 x 7 x .9825 = 171,937.50
Sale proceeds 25,000 x 7 x .9350 = 163,625
Loss 8,312.50

Income from debenture

20,854.17 - 8,312.50 = 12,541.67

Mortgage
March 1 to October 1 2020 (7 months)
50,000 x 6 x .09 x 7/12 = 15,750

Oct 1 to Dec 31 2020 (3 months)

50,000 x 2 x .09 x 3/12 = 2,250

Total interest earned: 15,750 + 2,250 = 18,000

Sales price: 50,000 x 4 x 1.0350 = 207,000

Original cost: 50,000 x 4 x 1.0275 = 205,500
Gain 1,500

Income from mortgage

18,000 + 1,500 = 19,500

Income from debenture 12,541.67

Income from mortgage 19,500.00
32,041.67