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The firm has $15 million in retained earnings. After a capital structure with $15 million in retained earnings is reached, all additional equity financing must come in the form of new common stock. Common stock is selling for $24 per share and underwriting costs are estimated at $3 if new shares are issued.
Dividends for the next year will be $0.80 per share, and earnings and dividends have grown consistently at 11 per cent per year. The yield on comparative bonds has been hovering at 12 per cent. The investment bankers feels that the first $20 million of bonds could be sold to yield 12 per cent and any additional debt might require a 2 per cent premium and be sold to yield 14 per cent. The corporate tax rate is 30 per cent. Debt represents 40 per cent of the capital structure.
a. Based on the two sources of financing, what is the initial weighted average cost of capital.
b. At what size capital structure will the firm run out of retained earnings? What will the marginal cost of capital be immediately after that point?
c. At what size capital structure will there be a change in the cost of debt? What will the marginal cost of capital be immediately after that point?
wissota co. applies overhead based on direct labor hours. the variable overhead standard is 4 hours at 6 per hour.
Effects of operating leverage on profitability
After paying out $225,794 in dividends, the balance went into retained earnings. If the firm's total retained earnings were $846,972, what was the retained earnings on its balance sheet on July 1, 2010?
Which of the following should be classified as an investing activity on a statement of cash flows?
Columbia Corp held 1,500 of Vianco common stock with a cpst of $74,387. These shares were classified as a long term available-for-sale investment. It sold the shares on December 31st for $55,275. Prepare the journal entry to record this sale.
The existence of a material weakness led to an adverse opinion in the internal control audit report of a publicly traded company. Which of the following statements is correct if management believes that it has remediated the weakness?
Complete the case study using the ethical decision making model. As the new accountant for the Get Gas Here Truckstop & Restaurant,
Elaine owns an unincorporated manufacturing business. In 2011, she purchases and places in service $250,000 of qualifying five-year equipment for use in her business. Her taxable income from the business before any section 179 deduction is $70,000..
Prepare a paper which examining a business problem and opportunity confronting your organization that you feel could be addressed through the application of business research principles by performing the following:
1 why is it important that we differentiate the sources of a companys capital structure between debt and equity
Prepare journal entries to record Tasha's income tax expense for the current year. Show well-labeled supporting computations for the income tax payable, the valuation allowance, and the change in the deferred tax asset account.
At December 31, 2008, the trial balance of Worcester Company contained the following amounts before adjustment. Based on the information given, which method of accounting for bad debts is Worcester Company using-the direct write-off method or the a..
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