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
Probability Analysis This engrosses the assessment of the probabilities of future events linked to an investment project. If these events are universal circumstances the techni

RETAINED PROFITS BROUGHT FORWARD If we recall from the consolidated balance sheet, the group-retained profits should be made up of the holding companies retained profit plus the

The city of Fredericton operates automobile parking facilities and is evaluating a proposal to erect and operate a structure for parking in the city's downtown area. 2 designs for

UNREALIZED PROFIT ON CLOSING INVENTORY Where one company has bought goods from another company in the group and part of these goods are included in the closing inventory, then t

Illustration of Bankruptcy Njuguna Mwandawiro, carrying on a business as a trader in Likoni, Mombasa, finds himself insolvent, and on 15 August 1997 files his petition in bankr

what are methods of calculating depreciation?

#Which of the two ratios are the greatest? 1.67.1 or 0.29.1

The following figures are taking from the book of Sheen Compnay limited as on december 31,2009 DEBIT SIDE : opening stock Rs 75000 purchases 245000 wages 30000 c


Sales volume reaches the maximum capacity of the new machine in Year 4. The positive NPV point to that the investment in Machine Two is financially acceptable althoug