Question
In: Finance
On 31 December 2018, The Hiya Magazine company reported the composition of their source of capital...
On 31 December 2018, The Hiya Magazine company reported the composition of their source of capital as presented in the following table:
|
Source of capital |
Amount ($) |
|
Bank loan (interest 10%) |
200,000 |
|
Bonds (coupon rates 12%, will be matured in 3 years, the current YTM is 13%) |
450,000 |
|
Preferred shares (9%, par value $100) |
175,000 |
|
Common (Ordinary) shares (par value $10, the last dividend paid was $3.5 per share) |
575,000 |
|
Total capital |
1,4000,000 |
The company is in 25% marginal tax rate and its dividend grows by 5% yearly. Currently, company preference shares and common shares are traded at $115 and $23, respectively.
Ques tion:
-
How does capital structure of the company affect its cost of capital? (4%)
-
Calculate the after-tax cost of capital of the bank loan! (3%)
-
Calculate the after-tax cost of capital of the company bonds! (3%)
-
Calculate the cost of capital of company preferred shares! (3%)
-
Calculate the cost of capital of company common shares! (3%)
-
Calculate the company weighted average of cost of capital (WACC)! (5%)
-
How does company use the WACC for? (4%)
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Chang Company reported the following for the year ended December 31, 2018:
Chang Company reported the following for the year ended December 31, 2018:
Gross sales revenue $750,000
Sales returns $ 30,000
Cost of goods sold $250,000
Selling and administrative expenses $100,000
Gain on disposal of the battery division; considered a discontinued operation $ 20,000
Loss from operations of the battery division $ 60,000
Interest expense $ 40,000
Gain on the sale of a fixed asset $ 10,000
Assume...
. At December 31, 2018, Garvey Company reported this information on its balance sheet. Accounts...
. At December 31, 2018, Garvey Company
reported this information on its balance sheet.
Accounts
Receivable $
960,000
Less:
Allowance for Doubtful
Accounts 78,000
During 2019, the company had the
following transactions related to receivables.
1.
Sales on
account $3,600,000
2.
Sales returns and
allowances 50,000
3.
Collection of account
receivables 3,100,000
4.
Write-offs of account receivable deemed
uncollectible 92,000
5.
Recovery of bad debts previously written off as
uncollectible 28,000
Instructions:
(a) Prepare the journal
entries to record each of these five transactions. Assume that...
Holmes Company reported the following balance sheets at December 31, 2017 and 2018: ($ in millions)...
Holmes Company reported the following balance sheets at December
31, 2017 and 2018:
($ in millions)
December 31,
2018
2017
Cash
$
45
$
40
Accounts receivable
170
175
Inventory
250
230
Fixed assets
500
400
Accumulated depreciation
(150
)
(120
)
Total assets
$
815
$
725
Accounts payable
$
100
$
80
Long-term debt
455
425
Common stock
50
50
Retained earnings
280
200
Treasury stock
(70
)
(30
)
Total liabilities and
stockholders' equity
$
815
$...
Corning-Howell reported taxable income in 2018 of $140 million. At December 31, 2018, the reported amount...
Corning-Howell reported taxable income in 2018 of $140 million.
At December 31, 2018, the reported amount of some assets and
liabilities in the financial statements differed from their tax
bases as indicated below:
Carrying Amount
Tax Basis
Assets
Current
Net accounts
receivable
$
14
million
$
20
million
Prepaid insurance
32
million
0
Prepaid advertising
7
million
0
Noncurrent
Investments at fair value with
changes in OCI*
6
million
0
Buildings and equipment
(net)
380
million
290
million
Liabilities
Current...
Corning-Howell reported taxable income in 2018 of $190 million. At December 31, 2018, the reported amount...
Corning-Howell reported taxable income in 2018 of $190 million.
At December 31, 2018, the reported amount of some assets and
liabilities in the financial statements differed from their tax
bases as indicated below:
Carrying Amount
Tax Basis
Assets
Current
Net accounts receivable
$
10
million
$
12
million
Prepaid insurance
37
million
0
Prepaid advertising
7
million
0
Noncurrent
Investments at fair value with changes in OCI*
6
million
0
Buildings and equipment (net)
460
million
350
million
Liabilities
Current...
Sugarland Industries reported a net income of $820,750 on December 31, 2018. At the beginning of...
Sugarland Industries reported a net income of $820,750 on
December 31, 2018. At the beginning of the year, the company had
570,000 common shares outstanding. On April 1, the company sold
31,200 shares for cash. On August 31, the company issued 56,400
additional shares as part of a merger.
Required: Compute Sugarland's net income that would produce a
basic EPS of $2.35 per share for 2018.
Dirk Company reported the following balances at December 31, 2016: common stock $391,000, paid-in capital in...
Dirk Company reported the following balances at December 31,
2016: common stock $391,000, paid-in capital in excess of par
value—common stock $109,000, and retained earnings $242,000. During
2017, the following transactions affected stockholders'
equity.
1.
Issued preferred stock with a par value of $122,000 for
$204,000.
2.
Purchased treasury stock (common) for $39,000.
3.
Earned net income of $143,500.
4.
Declared and paid cash dividends of $51,000.
Prepare the stockholders’ equity section of Dirk Company’s December
31, 2017, balance sheet.
Mosaic’s Company balance sheet at December 31, 2018, reported the following: Accounts receivable...........................................$2,500,000 Allowance for uncollectible...
Mosaic’s Company balance sheet at December 31, 2018, reported
the following:
Accounts
receivable...........................................$2,500,000
Allowance for uncollectible
accounts...................$66,600
The following are the transactions to be taken into
consideration for 2019:
a. Total credit sales for 2019 were $3,600,000.
b. 2% of sales were estimated to be uncollectible.
c. The company received cash payments on account during 2019 for
$1,000,000
d. Accounts receivable identified to be uncollectible totaled
$94,000.
e. December 31, 2019, aging of receivables indicates that
$75,000 of the receivables...
Mosaic’s Company balance sheet at December 31, 2018, reported the following: Accounts receivable...........................................$2,500,000 Allowance for uncollectible...
Mosaic’s Company balance sheet at December 31, 2018, reported
the following:
Accounts
receivable...........................................$2,500,000
Allowance for uncollectible
accounts...................$66,600
The following are the transactions to be taken into
consideration for 2019:
a. Total credit sales for 2019 were $3,600,000.
b. 2% of sales were estimated to be uncollectible.
c. The company received cash payments on account during 2019 for
$1,000,000
d. Accounts receivable identified to be uncollectible totaled
$94,000.
e. December 31, 2019, aging of receivables indicates that
$75,000 of the receivables...
As of December 31, 2018, Warner Corporation reported the following: Dividends payable $ 23,000 Treasury...
As of December 31, 2018, Warner Corporation reported the
following:
Dividends
payable
$
23,000
Treasury
stock
630,000
Paid-in
capital—share repurchase
23,000
Other paid-in
capital accounts
4,300,000
Retained
earnings
3,300,000
During 2019, half of the treasury stock was resold for $246,000;
net income was $630,000; cash dividends declared were $1,530,000;
and stock dividends declared were $530,000.
What would shareholders' equity be as of December 31, 2019?
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