-Company Total market Value = $6million -200,000 shares outstanding -$2 million worth of bonds issued at 8% interest, uses proceeds to buy back ordinary shares -Corporate tax rate of 30% Calculate Share price before bond Issue Calculate present value of tax shield that the company acquires through the bond issue

-Company Total market Value = $6million -200,000 shares outstanding -$2 million worth of bonds issued at 8% interest, uses proceeds to buy back ordinary shares -Corporate tax rate of 30% Calculate Share price before bond Issue Calculate present value of tax shield that the company acquires through the bond issue

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter10: Stockholder's Equity

Section: Chapter Questions

Problem 6MCQ: Ames Corporation repurchases 10,000 shares of its common stock for $12 per share. The shares were...

See similar textbooks

Similar questions

Ames Corporation repurchases 10,000 shares of its common stock for $12 per share. The shares were originally issued at an average price of $10 per share. Later it resells 6,000 of the shares for $15 per share and the remaining 4,000 shares for $17 per share. How much gain or loss should Ames report on its income statement as a result of these transactions? $38.000 gain $0 $20,000 loss $20,000 loss and $38,000 gain
ABC Corporation is engaged in buying and selling securities. The corporation sold 50,000 shares with a par value of P 5 per share for P 8 per share. How much is the income tax of the said corporation assuming that tax rate is 30%? P NIL P 120,000 P 45,000 P 75,000
Mogliani Miller Assumptions, with corp tax of 40% Company A issuing $700 mill in perp corporate bonds IntresRate = 7% Using proceeds to rebuy shares How much will Company A grow value wise?
Blue Company has a complex capital structure with $1,000,000 4% convertible bonds (convertible into 10,000 shares) when the tax rate is 20%. Net income is $304,000 and the weighted average common shares outstanding are equal to 80,000. Blue will report the following earnings per share (rounded to 2 decimal places): O Basic $3.80 and Diluted $-0-. O Basic $3.80 and Diluted $3.80. O Basic $3.80 and Diluted $3.20. O Basic $3.80 and Diluted 3.73.
Information on Gerken Power Co., is shown below. Assume the company’s tax rate is 34 percent. Debt: 8,600 7.9 percent coupon bonds outstanding, $1,000 par value, 24 years to maturity, selling for 104.5 percent of par; the bonds make semiannual payments. Common stock: 211,000 shares outstanding, selling for $83.10 per share; beta is 1.16. Preferred stock: 12,100 shares of 5.8 percent preferred stock outstanding, currently selling for $97.90 per share. Market: 7.05 percent market risk premium and 4.85 percent risk-free rate. Required:Calculate the company's WACC. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC %
2. Oppnox Company reported net income of $750,000 for the year ended 31 December 20X1. The company had a weighted average of 690,000 shares of common stock outstanding. In addition, the company has only one potentially dilutive security: $50,000 of 6 percent convertible bonds, convertible into a total of 10,000 shares. Assuming a tax rate of 30 percent, calculate Oppnox's basic and diluted EPS.
Company ABC is planning a $4,000,000 expansion this year. The expansion can be financed by issuing either common shares of bonds. The new common share can be sold for $5 per share. The bonds can be issued with a 12% coupon rates. The firm’s existing preference share pay dividends of $2 per share. The company’s corporate income tax is 30%. The financial statement of Company ABC is as follow:- Balance Sheet as at 31st December 2021 Current Assets $2,000,000Fixed Assets $8,000,000 $10,000,000 Current Liabilities $1,500,000Bonds:(8.5%, $1,000 par value) $4,000,000(9%, $1,000 par Value) $1,000,000 Preference Shares($100 par value) $500,000 Ordinary Shares($2 par value) $2,400,000Retained Earnings $600,000…
Jerald Toy Corporation has 7% cost of debt, 11% cost of equity, and 8% cost of preferred stock. Jerald issued 104,000 common shares outstanding at P20 issue price per common share; 40,000 preference shares outstanding at P34 issue price per share; and, a bond issuance with a face value of P500,000 selling at 102% of face value. Jerald's Corporate tax rate is 34%. What is the WACC for Jerald? *
During the current year, North Corporation had 2 million shares of common stock outstanding. Two thousand 10% convertible bonds, each with $1,000 face value, were issued at face amount at the beginning of the year. East reported net income of $2 million for the year. Each bond is convertible into 10 shares of common stock. The tax rate is 25%. What is diluted EPS (rounded)? A. $1.00. B. $0.90. C. $0.95. D. $1.10. -3-
How would I Debit and Credit for the transactions shown? Oct. 1 Purchased $90,000 of Dream Inc. 10-year, 5% bonds, directly from the issuing company, at their face amount plus accrued interest of $375. The bonds are classified as a held-to-maturity long-term investment. 7 Sold, at $38 per share, 2,600 shares of treasury common stock purchased on Jun. 8. 14 Received a dividend of $0.60 per share from the Solstice Corp. investment on Jun. 1. 29 Sold 1,000 shares of Solstice Corp. at $45, including commission. 31 Recorded the payment of semiannual interest on the bonds issued on May 1 and the amortization of the premium for six months. The amortization is determined using the straight-line method. Dec. 31 Accrued interest for three months on the Dream Inc. bonds purchased on Oct. 1. 31 Pinkberry Co. recorded total earnings of $240,000. Equinox Products recorded equity earnings for its share of Pinkberry Co. net income. 31 The fair value for Solstice…
Ace Bhd’s capital structure consists of 200,000,000 ordinary shares in issue throughout the 2021 financial year. Their profit after tax and non-controlling interest for the year ended 31 December 21 was RM50,000,000. The corporate tax is 30%. On 1 April 2021, Ace Bhd issued RM20,000,000 of convertible unsecured loan stock (CULS) at par. The CULS carries an effective interest rate of 8% per annum and each RM1,000 of CULS is convertible into 500 ordinary shares on or before 31 December 2022. Even though the offer looks attractive, none of the CULS has been converted until 31 December 2021. Required: Compute the basic EPS and the diluted EPS for Ace Bhd for the year ended 31 December 2021. Briefly explain the accounting treatment applied in this scenario.
Mirrlees Corp. has $3,000,000 bonds convertible into 50 shares per $1,000 bond. Mirrlees has 1,000,000 outstanding shares. Mirrlees has a tax rate of 21%. The average Aa bond yield at the time of issue was 10%. Compute the "basic earnings per share" if after-tax earnings are $1,400,000. A. $1.40 B. $0.71 C. $1.25 D. $1.33