This section is from the book "Problems In Private Finance", by Charles W. Gerstenberg. See also: The Private Equity Edge: How Private Equity Players and the World's Top Companies Build Value and Wealth.
1. Refer to the charters of the General Electric Company (p. 26), Wisconsin Edison Company (p. 43), the Atchison, Topeka and Santa Fe (p. 54), the U. S. Steel Corporation (p. 59) and parts of the certificate of incorporation of the California Petroleum Company (p. 101), the Chicago, Milwaukee and St. Paul Ry. Company (p. 105), the May Department Stores (p. 107), Western Maryland Rd. Company (p. 1011), and American International Corporation (p. 1013), and tell which of the following characteristics the stock of each has:
Preferred as to assets Not preferred as to assets
Cumulative preferred Non-cumulative
Non-participating Participating Participating immediately Manager's participating
Convertible preferred (See S. C. L. of N. Y., Sec. 61.) Redeemable preferred
2. The certificate of incorporation of A Company says that the stock shall be divided into two classes, one of which shall be common and the other 7 per cent preferred. Is the preferred, voting or non-voting (G. C. L. of N. Y., Sec. 23); preferred as to assets; cumulative or non-cumulative (See 84 N. Y. 157); participating, non-participating or participating immediately; convertible (S. C. L. of N. Y., Sec. 61); redeemable; protected?
3. State as to each form mentioned in problem 1, whether the variation from the normal common stock is a variation which effects the control, income, or risk of the stockholders.
4. Explain how J. P. Morgan undertook to use the redeemable feature in the preferred stock of the Northern Pacific in 1901 to retain control of that company from J. J. Hill. (Lyon's Capitalisation.)
5. Explain the difference in prices between Bethlehem Steel 7 per cent preferred and common stocks in 1916. (See pp. 761-763.)
6. What are the quotations for American Brake Shoe & Foundry Company preferred and common stocks? Explain the difference in prices.
7. In 1913 National Lead Common, paying 3% without much prospect of increase, was selling around 60. Preferred never went above 108, although it is a 7% cumulative preferred, paying dividends at that rate. Explain.
8. In 1916 Gulf States first 7 per cent cumulative preferred, preferred as to assets and dividends, sold at 115; the second 6 per cent non-cumulative preferred sold as high as 190. Explain the difference in prices.
9. Assume a company has $5,000,000 of common stock and $7,-500,000 of 8 per cent preferred stock. How much would each class get if the company distributed its entire surplus of $6,000,000 under the following circumstances?
(1) The preferred is participating;
(2) The preferred is non-participating;
(3) The preferred is participating immediately;
(4) The preferred is cumulative non-participating, and has not received dividends for four years past;
(5) The preferred is same as (4), except that preferred stock is participating immediately;
(6) The preferred is same as (4) except that preferred stock is participating.
10. Has the May Department Stores (pp. 767-8) lived up to its obligations to its preferred stockholders? (pp. 107-110.)