Calculate the cash flow-agency costs, Financial Accounting

Assignment Help:

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

 


Related Discussions:- Calculate the cash flow-agency costs

Trial balance, Jim owns and manages a small business, which provides an off...

Jim owns and manages a small business, which provides an office design service, as well as buying and selling office furniture. Jim is a sole trader who manages all aspects of the

What is the annual dividend on the preferred stock, Q. Somento Forest Inc. ...

Q. Somento Forest Inc. has 10,000 shares of 6%, $100 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2014. What is

Other aspects of the consolidated balance sheet, OTHER ASPECTS OF THE CONSO...

OTHER ASPECTS OF THE CONSOLIDATED BALANCE SHEET The consolidated balance sheet may require a special approach under the following situations: 1) Pre-acquisition losses in subs

Earnings per share, Rockland Corporation earned net income of $346,500 in 2...

Rockland Corporation earned net income of $346,500 in 2012 and had 100,000 shares of common stock outstanding throughout the year. Also outstanding all year was $924,000 of 10% bon

What amount of loss, On January 1, 2011, Doty Co. redeemed its 15-year bond...

On January 1, 2011, Doty Co. redeemed its 15-year bonds of $2,500,000 par value for 102. They were originally issued on January 1, 1999 at 98 with a maturity date of January 1, 201

Difference between a static budget and a flexible budget, XYZ Enterprises m...

XYZ Enterprises manufactures tires for the Formula One motor racing circuit. For August 2011, XYZ budgeted to manufacture and sell 3,000 tires at a variable cost of $74 per tire an

Is the emergency center a wise use of the hospital''s , Consider a not-for-...

Consider a not-for-profit hospital faced with a familiar choice: to open or not to open an emergency center in a new suburban hospital shopping mall.  The mall's developers claim t

Effect of discharge-discharge of bankrupt, Effect of discharge An order...

Effect of discharge An order of discharge releases the bankrupt from all disabilities imposed by the bankruptcy (except those which apply for a fixed period after discharge - s

AFM, I need help with assignment completeion

I need help with assignment completeion

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd