Chapter 10, Problem 10.19S

(Learning Objective 2. 5: Define and use various stock values) Zanzibar Corporation is conducting a special meeting of its board of directors to address some concerns raised by the stockholders. Stockholders have submitted the following questions Answer each question.

1. 1. What are the differences between common stock and preferred stock?
2. 2. Suzanne Gibson, a Zanzibar shareholder, proposes to transfer some land she owns to the company in exchange for shares of Zanzibar stock. What value should Zanzibar use to determine the number of shares of stock to issue for the land?
3. 3. Preferred shares generally are preferred with respect to dividends and in the event of liquidation. Why would investors buy Zanzibar common stock when preferred stock is available?
4. 4. What is the difference between return on assets (ROA) and return on equity (ROE)?
5. 5. What items can Zanzibar Corporation focus on to improve the company’s ROE? (Hint: Use the DuPont model to answer this question.)