Calculate the cash flow-agency costs, Financial Accounting

Tom Scott is the owner, president, and primary salesperson for Scott Manufacturing. Because of this, the company's profits are driven by the amount of work Tom does. If he works 40 hours each week, the company's EBIT will be $405,000 per year; if he works a 50-hour week, the company's EBIT will be $505,000 per year. The company is currently worth $2.7 million. The company needs a cash infusion of $1.32 million, and it can issue equity or issue debt with an interest rate of 9.5 percent. Assume there are no corporate taxes.

Requirement 1:

What are the cash flows to Tom under each scenario? (Do not include the dollar signs ($). Round your answers to the nearest whole dollar amount. (e.g., 32))


Debit issue Equity issue
40 hour week cash flow $ ________ $ ______
50 hour week cash flow $ _______ $ ______

Requirement 2:

Under which form of financing is Tom likely to work harder?
(i) Debit issue ; (ii) Equity issue

 

Posted Date: 3/29/2013 5:08:38 AM | Location : United States







Related Discussions:- Calculate the cash flow-agency costs, Assignment Help, Ask Question on Calculate the cash flow-agency costs, Get Answer, Expert's Help, Calculate the cash flow-agency costs Discussions

Write discussion on Calculate the cash flow-agency costs
Your posts are moderated
Related Questions
1.discuss how the vat system works 2.list and explain the vat supply categories, provide examples in each category write as an essay of 500 words

The John Company maintains a checking account at the Bank of the Cumberland. The bank provides a bank statement along with canceled checks on the last day of each month. The Octobe

During the fourth quarter of 2006, Cablevision, Inc., generated excess cash, which the company invested in securities, as follows: On Nov. 12 purchased 1,000 shares of common st

Content of accounts Periodical accounts should normally consist of:         1.    Balance sheet of the whole trust;         2.    Capital account;         3.    Income account


Analyse the limitations of using a periodic inventory system and provide examples to support your view. essay type

The following information was taken from the books and records of Ludwick, Inc.: 1. Net income $ 280,000 2. Capital structure: a. Convertible 6% bonds. Each of the 300, $1,000 bond

Piecemeal Realizations and Distributions Partnership dissolutions may take a substantial number of days even months) so it is unlikely that all cash generated will be simultane

Define why country in rigorous recession reflect on devaluation? Countries can deal with the both internal problems with external solutions. Why might a country in rigorous rec

The City of Miami must replace a number of its concrete mixer trucks with new trucks. It has received two bids and has evaluated closely the performance characteristics of the seve