Question

It is January 2nd and senior management of Baldwin meets to determine their investment plan for the year. They decide to fully fund a plant and equipment purchase by issuing 75,000 shares of stock plus a new bond issue. Assume the stock can be issued at yesterday’s stock price ($29.72) and leverage changes to 2.8. Which of the following statements are true? Select all that apply.

Select: 3

Working capital will remain the same at $15,582,128

Equity will be $78,780,432 Total liabilities will be $118,934,248

Total Assets will rise to $214,344,009

Baldwin will issue stock totaling $2,229,000

The total investment for Baldwin will be $199,943,680

Answer 1

We can check the facts that apply here as follows:

New stocks to be issued = 75000

Price per share = $ 29.72

Total Value of Stock Issue by Baldwin = 75000 * 29.72

= $ 2,229,000

To verify the above statements we will consider some of them to be true and check whther the information provided in the question matches with the values or not. So we consider the values of Total Assets & Equity be true.

Total Assets = Total Liabilities + Total Equity

Total Assets (Given) = $ 214,344,009

Total Equity (Given) = $ 78,780,432

Total Liabilities = Total Assets - Total Equity

= 214,344,009 - 78,780,432

= $ 135,563,577

Old Value of Equity = New Equity Value - New Shares issued

= 78,780,432 - 2,229,000

= $ 76,551,432

Leverage = Total Assets / Total Equity

= 214,344,009 / 78,780,432

= 2.72 or 2.8

So the statements which are true are:

Baldwin will issue stock totaling $2,229,000

Total Assets will rise to $214,344,009

Equity will be $78,780,432.