FCOJ, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 35 percent debt. Currently there are 5,000 shares outstanding and the price per share is $49. EBIT is expected to remain at $43,6000 per year forever. The interest rate on new debt is 7 percent wand there are no taxes.

a. Ms. Brown, a shareholder of the firm, owns 100 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent ?

b. What will Ms. Brown's cash flow be under the proposed capital structure of the firm? Assume that she keeps all 100 of her shares.

c. Suppose the company does convert, but Ms. Brown prefers the current all-equity capital structure. Show how she could unloved her shares of stock to recreate the original capital structure.

d. Using your answer to part (c), explain why the company's choice of capital structure is irrelevant.

100 80 55 105 60 85 30 23 100 110 105 95 105 60 110 120 95 90 60 70

mean = 82.9

(b) Using the given data as representative of the population of prices of all summer sleeping bags, find a 90% confidence interval for the mean price μ of all summer sleeping bags. (Round your answers to two decimal places.)

mean = 91.5

(b) Find a 75% confidence interval for the population average weight μ of all adult mountain lions in the specified region. (Round your answers to one decimal place.)

mean = 10.05

(b) Find a 99.9% confidence interval for the population mean of total calcium in this patient's blood. (Round your answer to two decimal places.)

A company’s Balance Sheet (in millions) Assets Liabilities & Equity Current $20 Net Fixed $80 Bonds ($1000 Par) 40 Preferred stocks ($100 Par) 20 Total $100 Common Stock ($1 par) 40 Total $100 The company's bonds have 15 years to mature, pay 12% coupon rate semi-annually and comparable bonds' YTM is 14%. The market price of the common stock is $3.25 per share. The most recent dividend on the common stock was $0.85. The company’s applicable tax rate is 30%. The common stock dividend has been growing steadily at 4% per year. The same growth rate is expected to continue for long time in the future. The floatation cost for issuing new common stocks is 10%. The market value of the preferred stock is $85 and it pays quarterly dividend of $1.35. The floatation cost on issuing new preferred stock is 5% Assume the company will issue new preferred stocks and new common stocks. What is the WACC of the company using the market weights of capital structure?

29.73%

32.47%

26.95%

17.38%

19.54%

A company’s Balance Sheet (in millions)

Assets                                                             Liabilities & Equity

Current                        $20              

Net Fixed                    $80                              Bonds ($1000 Par)                  40

                                                                        Preferred stocks ($100 Par)   20

Total                           $100                            Common Stock ($1 par)         40

                                                                        Total                                       $100

The company's bonds have 15 years to mature, pay 12% coupon rate semi-annually and comparable bonds' YTM is 14%.

The market price of the common stock is $3.25 per share. The most recent dividend on the common stock was $0.85.

The company’s applicable tax rate is 30%.

The common stock dividend has been growing steadily at 4% per year. The same growth rate is expected to continue for long time in the future.

The floatation cost for issuing new common stocks is 10%.

The market value of the preferred stock is $85 and it pays quarterly dividend of $1.35.

The floatation cost on issuing new preferred stock is 5%

Assume the company will issue new preferred stocks and new common stocks.

What is the WACC of the company using the book weights of capital structure?

Conspicuous Consumption Inc., a prominent consumer products firm, is debating whether to convert its all-equity capital structure to one that is 35 percent debt. Currently, there are 8,000 shares outstanding and the price per share is $70. EBIT is expected to remain at $30,000 per year forever. The interest rate on new debt is 8 percent per year and there are no taxes.

a) Ms. Benson, a shareholder of the firm, owns 100 shares of the company. What is her cash flow under the current capital structure, assuming that the firm has a dividend payout ratio of 100 Percent?

b) What will Ms. Benson’s cash flow be under the proposed capital structure of the firm? Assume that she keeps all 100 of her shares.

c) Suppose that the company does convert, but Ms. Benson prefers the current all-equity capital structure. Show how she could unlever her shares of stock to recreate the original capital Structure.

d) Using your answer in part (c), explain why the company’s choice of capital structure is irrelevant.

Ayayai’s Boards sells a snowboard, Xpert, that is popular with snowboard enthusiasts. Information relating to Ayayai’s purchases and sales of Xpert snowboards during September is shown below. During the same month, 242 Xpert snowboards were sold. Additional data regarding Ayayai’s sales of Xpert snowboards are provided below. Assume that Ayayai’s uses a perpetual inventory system.

Part 1

Calculate moving average cost at Sept 1, 5, 12, 16, 19, 26 & 29. (Round answers to 2 decimal places, e.g. 1.25.)

Conspicuous Consumption Inc., a prominent consumer products firm, is debating whether to convert its all-equity capital structure to one that is 35 percent debt. Currently, there are 8,000 shares outstanding and the price per share is $70. EBIT is expected to remain at $30,000 per year forever. The interest rate on new debt is 8 percent per year and there are no taxes.

a) Ms. Benson, a shareholder of the firm, owns 100 shares of the company. What is her cash flow under the current capital structure, assuming that the firm has a dividend payout ratio of 100 Percent?

b) What will Ms. Benson’s cash flow be under the proposed capital structure of the firm? Assume that she keeps all 100 of her shares.

c) Suppose that the company does convert, but Ms. Benson prefers the current all-equity capital structure. Show how she could unlever her shares of stock to recreate the original capital

Structure.

d) Using your answer in part (c), explain why the company’s choice of capital structure is irrelevant.

Problem 1: Conspicuous Consumption Inc., a prominent consumer products firm, is debating whether to convert its all-equity capital structure to one that is 35 percent debt. Currently, there are 8,000 shares outstanding and the price per share is $70. EBIT is expected to remain at $30,000 per year forever. The interest rate on new debt is 8 percent per year and there are no taxes.

a) Ms. Benson, a shareholder of the firm, owns 100 shares of the company. What is her cash flow under the current capital structure, assuming that the firm has a dividend payout ratio of 100 percent?

b) What will Ms. Benson’s cash flow be under the proposed capital structure of the firm? Assume that she keeps all 100 of her shares.

c) Suppose that the company does convert, but Ms. Benson prefers the current all-equity capital structure. Show how she could unlever her shares of stock to recreate the original capital structure.

d) Using your answer in part (c), explain why the company’s choice of capital structure is irrelevant.

Star, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 50 percent debt. Currently there are 1,000 shares outstanding and the price per share is $65. EBIT is expected to remain at $37,500 per year forever. The interest rate on new debt is 8 percent, and there are no taxes.

1. Ms. Brown, a shareholder of the firm, owns 100 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? (4 points)
2. What will Ms. Brown’s cash flow be under the proposed capital structure of the firm? Assume that she keeps all 100 of her shares? (6 points)
3. Suppose Star does convert, but Ms. Brown prefers the current all-equity capital structure. Show how she could unlever her shares of stock to recreate the original capital structure. (6 points)
4. Using your answer to part (c), explain why Star’s choice of capital structure is irrelevant. (4 points)

Problem 5.4 (LO1, 2) Variable and Full Costing: Earnings Management with Full Costing; Changes in Production and Sales Sampson Steel produces high-quality worktables. The company has been in operation for three years, and sales have declined each year due to increased competition. The following information is available:

Required

1. Calculate profit and the value of ending inventory for each year under full costing.
2. Calculate profit and the value of ending inventory for each year under variable costing.
3. Explain how management of Sampson could manipulate earnings in 2021 by producing more units than are actually needed to meet demand. Could this approach to earnings management be repeated year after year?