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Erna Corp. has 7 million shares of common stock outstanding. The current share price is $79, and the book value per share is $6. Erna Corp. also has two bond issues outstanding. The first bond issue has a face value of $70 million, has a coupon of 8 percent, and sells for 94 percent of par. The second issue has a face value of $40 million, has a coupon of 9 percent, and sells for 107 percent of par. The first issue matures in 23 years, the second in 6 years. a. What are Erna’s capital structure weights on a book value basis? (Round your answer to 4 decimal places. (e.g., 32.1616)) Equity/Value Debt/Value b. What are Erna’s capital structure weights on a market value basis? (Round your answer to 4 decimal places. (e.g., 32.1616)) Equity/Value Debt/Value c. Which are more relevant, the book or market value weights? Market value Book value
Explain the “Accounts Payable Accounting” using a real example with different steps of sub-ledger and general ledger accounts.
The D.J. Masson Corporation needs to raise $400,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 1/10, net 90, and it currently pays on the 10th day and takes discounts. However, it could forgo disco..
What would be the weighted average cost of capital for Limp Linguini Noodle Makers, Inc. under the following conditions?
Why are investors risk-averse? How can investors deal with different degrees of risk? What is the expected return on a portfolio? How can the expected return on a portfolio be manipulated to minimize the risk on that portfolio? What is the beta coeff..
When the economy goes into a recession, do we expect spreads between corporate bonds and treasuries to widen or contract? Why?
In 2015, Tom and Amanda Jackson (married filing jointly) have $200,000 of taxable income before considering the following events: (Use the tax rate schedules.) On May 12, 2015, they sold a painting (art) for $110,000 that was inherited from Grandma o..
The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 18 percent a year for the next 4 years and then decreasing the growth rate to 3 percent per year. The company just paid its..
Consider the following cash flows. All market interest rates are 12% right now. Year 0 1 2 3 4 Cash Flow 160 170 180 230 1 (a) What price would you pay for these cash flows? What total wealth do you expect after 2.5 years if you sell the rights to th..
Interest on a certain issue of bonds is paid annually with a coupon rate of 8%. The bonds have a par value of $1,000. The yield to maturity is 9%. What is the current market piece of these bonds? The bonds will mature in 5 years. A given bond has 5 y..
ACME Refining is known for effective long term planning. its major facility, #1, will be decommissioned beginning in 25 yrs. the cost for decommissioning will begin, at the end of 25 yrs, with a cost of 6.5 million, and this cost increases by7% each ..
On May 10, a company issued for cash 2,000 shares of no-par common stock (with a stated value of $4) at $17, and on May 15, it issued for cash 3,000 shares of $17 par preferred stock at $61. Journalize the entries for May 10 and 15, assuming that the..
St. Johns River Shipyard's welding machine is 15 years old, fully depreciated, and has no salvage value. However, even though it is old, it is still functional as originally designed and can be used for quite a while longer. The applicable corporate..
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