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Assume that two firms, U and L, are identical in all respects except one: Firm U is debt free, whereas firm L has a capital structure that is 50% debt and 50% equity by market value. Further suppose that the assumptions of M&'s irrelevance Proposition I hold (no taxes or transactions cost, no bankruptcy cost, etc.) and that each firm will have earnings before interest and taxes (EBIT) of $800,000.
If required return on assets, r, for these firms is 12.5% and the risk free debt yields 5%, calculate the following values for both firm U and firm L. (1) total firm value, (2) market value of debt and equity, and (3) required return on equity.
Indicate the most likely effect of the following changes in credit policy on the receivables turnover ratio and days to collect (+ for increase, for decrease, and NE for no effect). a. Granted credit with shorter payment deadlines. b. Granted credit ..
The bond issue costs relating to this transaction were $90,000. Harry amortizes discounts, premiums, and bond issue costs using the straight-line method. What amount of loss should Harry recognize on the redemption of these bonds (ignore taxes)?
Polk Company builds custom fishing lures for sporting goods stores.
Distinguish between an auditor's responsibilities to detect errors, illegal acts, and fraud. What role does materiality have in determining the proper reporting and disclosure of such events?
The corporation makes annual payments to the trustee, who invests the proceeds in securities (frequently government bonds) and uses the accumulated total to retire the bond issue at maturity.
1. which gaap requires the use of depreciation for assets that have useful lives beyond 1 year? explain why this
Show the journal entries that OTT and NN would record for items (a)-(e). Use a two- part table, with the left side showing OTT's journal entries and the right side showing NN's journal entries.
A company received a special one-time order for 1000 units. Producing the order will have no effect on the production and sales of other units. The buyers name will stamped on each unit, at cost of $2000. Normal cost data, excluding stamping, follows
45-day note of Harold Stone.
Discuss the possible issues that implementing the proposed method would cause to the organization. Suggest additional controls that you would put into place to overcome the issues. Provide specific examples to support your response.
Generally speaking, many companies are interested in the potential cost savings of using the same product and promotional mix on a global basis.
on january 1 2010 lead inc. issues five-year 10000000 9 percent notes at 98 9800000. the discount at the time of sales
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