ACC291 Week6 E11-15, E12-1, E12-2, P11-6A

Star Corporation issued both common and preferred stock during 20X6. The stockholders' equity sections of the company's balance sheets at the end of 20X6 and 20X5 follow.

Welch Manufacturing has excess capacity. The following per unit data apply for sales to regular customers:

Research Problem 1) New Gate corporation desires to acquire Old Post in a non-taxable transaction. Prior to entering into this transaction with New Gate, Old Post issues $800,000 worth of 15-year bonds paying 6% annually. The bonds are purchased by most of Old Post’s shareholders and also by many individuals who have no affiliation with Old Post. New Gate makes an offer to the shareholders to exchange two shares of its common voting class A stock for each common share of Old Post and 20 of common voting class B stock for each preferred share of Old Post.

Assuming the market interest rate on the issue date is 7%, the bonds will issue at $200,000. Record the bond issue on January 1, 2012, and the first two semi-annual interest payments on June 30, 2012, and December 31, 2012.

Assess how the type of market structure impacts your chosen company’s financial performance as measured by performance variables over the past three years. Support your response with data and graphs illustrating two performance variables of your choosing (e.g., sales, net income, stock price) over time.

1. Describe the impact the three proposed accounting methods (full revenue recognition, deferral of revenue, and partial revenue recognition) would have on the company’s financial statements: 1) at the time of the sale, and 2) in future periods.

and regulate the chemical reactions and processes needed for growth, reproduction, and the maintenance of health.

The return on equity (ROE) has also shown an increase in 2009 over the previous year suggesting a successful investment by shareholders. This increase, coupled with the fact that the basic earnings per share (EPS) has increased significantly from 61.78 cents in 2008 to 88.26 cents in 2009 (143%) shows great improvement in the profit per share. Please note that the basic EPS has been used in this analysis as the diluted EPS includes employee options (JBH Annual Report, 2009), skewing and reducing the value of the EPS.

a) How many shares will the firm have to issue, assuming they issue the new shares at the current price per share?

The dividends to Kennecott equal to the difference between Carborundum’s net income after adjustment and the profit retention. The methodology Kennecott’s management team used to determine the value of Carborundum to Kennecott was evaluated using an incorrect set of cash flows. First, it subtracted out the profit retention requirements needed to support Carborundum’s growth even though Kennecott would own the full equity in Carborundum, which is incorrect. Second, depending on the method used to value the company, the relevant set of cash flow is needed to be determined, either the free cash flow to the firm or the free cash flow to equity.

Market value proportions of: Debt = $1,147,200 / $4,897,200 = 23.4% Pref. Share = $1,250,000 / $4,897,200 = 25.5% Common equity = $2,500,000 / $4,897,200 = 51.1%

The purpose of this case is to have students examine dividend policy--cash dividends, stock splits, and stock dividends--from the viewpoint of its effect on corporate share prices.

A vertical and horizontal analysis of each company's balance sheet and income statement in this particular case will be enlightening. A vertical analysis will for instance shed some light on how revenue is being used. In this case, each component of the companies' financial statements will be converted into a percentage of a key component of either the balance sheet or the income statement. A special common size balance sheet and income statement will be utilized to ease comparison. The

In Balance Sheet under Non-current Liabilities: Bonds Payable Less: Bond Discount $100,000 ($20,000 - $784)

The current EPS of the company is now $14-$15. Historically, the dividend payout ratio mounts to an average 50%. So, the company expects payout the payout in 1959 to be $7/share. In the previous year the dividend rate was cut from $1.3 to $1.2 per share. But after the new deal, the CEO proposed a hike in the quarterly payout to $1.6 per share from the $1.2 given at present. The CEO even suggested the dividend rate to be propped up to $1.80 in 1960.