Chapter 11 Stockholders’ Equity: Capital Stock and Dividends 5317-Elevenoperates more than 24,000 convenience food stores worldwide. 7-Eleven stores are nor-
mally less than 3,000 square feet and carry a variety of items, including soft drinks, candy and
snacks, cigarettes, milk, and t-shirts. Many stores also sell CITGO-brand gasoline. 7-Eleven faces
increasing competition from other convenience store chains as well as from grocery and super-
market chains, grocery wholesalers and buying clubs, gasoline/miniconvenience stores, food
stores, fast food chains, and variety, drug, and candy stores. In groups of three to four, answer
the following questions:- Go to the 7-Eleven Web site, which is linked to the text’s Web site at http://duchac
.swlearning.com.How did the name 7-Eleven originate? - How many items do you think an average 7-Eleven carries?
- What percent of total sales is represented by gasoline sales?
- Describe some ways that you think 7-Eleven can increase its same-store sales in the face of
increasing competition.
In early 2002, Bernie Ebbers, then CEO of WorldCom Group, a major telecommunications com-
pany, was having personal financial troubles. Ebbers pledged a large stake of his WorldCom
stock as security for some personal loans. As the price of WorldCom stock sank, Ebbers’ bankers
threatened to sell his stock in order to protect their loans. To avoid having his stock sold, Ebbers
asked the board of directors of WorldCom to loan him nearly $400 million of corporate assets at
2.5% interest to pay off his bankers. The board agreed to lend him the money.
Comment on the decision of the board of directors in this situation.Lois Heck and Keith Ryan are organizing Beaufort Unlimited Inc. to undertake a high-risk gold-
mining venture in Canada. Lois and Keith tentatively plan to request authorization for 80,000,000
shares of common stock to be sold to the general public. Lois and Keith have decided to estab-
lish par of $1 per share in order to appeal to a wide variety of potential investors. Lois and Keith
feel that investors would be more willing to invest in the company if they received a large quan-
tity of shares for what might appear to be a “bargain” price.
Discuss whether Lois and Keith are behaving in a professional manner.Kilimanjaro Inc. began operations on January 6, 2007, with the issuance of 400,000 shares of $50
par common stock. The sole stockholders of Kilimanjaro Inc. are Donna White and Dr. Larry
Klein, who organized Kilimanjaro Inc. with the objective of developing a new flu vaccine. Dr.
Klein claims that the flu vaccine, which is nearing the final development stage, will protect in-
dividuals against 98% of the flu types that have been medically identified. To complete the pro-
ject, Kilimanjaro Inc. needs $20,000,000 of additional funds. The local banks have been unwilling
to loan the funds because of the lack of sufficient collateral and the riskiness of the business.
The following is a conversation between Donna White, the chief executive officer of
Kilimanjaro Inc., and Dr. Larry Klein, the leading researcher.White:What are we going to do? The banks won’t loan us any more money, and we’ve got to
have $20 million to complete the project. We are so close! It would be a disaster to quit
now. The only thing I can think of is to issue additional stock. Do you have any
suggestions?
Klein:I guess you’re right. But if the banks won’t loan us any more money, how do you think
we can find any investors to buy stock?Activity 11-1
Business emphasis
Activity 11-2
Board of directors’ actions
Activity 11-3
Ethics and professional con-
duct in business
BUSINESS ACTIVITIES AND RESPONSIBILITY ISSUES
Activity 11-4
Issuing stock