Delights, Inc., recently issued new securities to finance a new TV show. The project cost $35 million, and the company paid $2.2 million in flotation costs. In addition, the equity issued had a flotation cost of 7 percent of the amount raised, whereas the debt issued had a flotation cost of 3 percent of the amount raised. If the company issued new securities in the same proportion as its target capital structure, what is the company’s target debt-equity ratio?
Q: Althea Co. is currently estimating its cost of capital given the following information: Debt of the…
A: Beta coefficient shows the systematic risk of the assets. The beta factor shows the systematic risk…
Q: F Enterprises is evaluating whether to do a either a restricted or relaxed investment policy on…
A: The Return on Equity is calculated with the help of following formula Return on Equity = Net Income…
Q: NCC Corporation is considering building a new facility in Texas. To raise money for the capital…
A: Break point is the point and the dollar amount for the purchase of mutual fund shares and bonds , It…
Q: Lear Inc. has $1,030,000 in current assets, $465,000 of which are considered permanent current…
A: Earning before interest and taxes is $430,000 Tax rate 40% Long term financing cost is 9% Short term…
Q: the following capital structure: 40% of money will come from issuing bonds, and 60% will come from…
A: WACC= Cost of equity * Weight of equity+ Cost of debt * weight of debt.
Q: Conrad Corporation plans to raise $8 million to pay off its existing short-term bank loan of $2.4…
A: Money to be raised : $8 million Debt repayment : $2.4 million Assets purchase : $5.6 million…
Q: Being Human, Inc., recently issued new securities to finance a new TV show. The project cost $13.9…
A: Debt to equity ratio measures how much debt is there against equity. In simple words, it measures…
Q: FCOJ, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity…
A: A corporation's capital structure refers to the precise mix of debt and equity it employs to fund…
Q: The board of directors of Wildhorse Corporation is considering two plans for financing the purchase…
A: Calculation of Interest on Bonds Interest on Bonds = Face Value of Bonds X Coupon rate Interest on…
Q: During the most current year, XYZ Corp paid $55,240 in interest and $80,400 in dividends. In order…
A: Workings: Cash flow to shareholders = Dividends paid - New equity raised
Q: Cookies 'n Cream, Incorporated, recently issued new securities to finance a new TV show. The project…
A: Note - Since you have asked multiple questions, we will solve the first question for you. If you…
Q: Mahomes Manufacturing needs to raise $80 million to start a new project and will raise the money by…
A: Introduction Weighted Average Cost Of Capital: The weighted average cost of capital (WACC) is a…
Q: Ancova Bhd. wants to calculate its cost of capital. The company employs you as the financial…
A: in this we have to calculate cost of each equity,Debt and preference stock and than calculate…
Q: A company needs $35,943,750 to finance a major project in the company. The company expects that…
A: Given information: Financing needs amounted to $35,943,750 Expected earnings is $45,650,000 Number…
Q: ty in Texas. To raise money for the capital projects, the corporation plans the following capital…
A: Weighted average cost of capital is considering the weight of debt and weight of equity and cost of…
Q: The total resources of YVONNE Company is Php 20 million. Of this amount, 40% is in the form of…
A: Return on equity means the amount of money earned by the shareholders by investing in the equity of…
Q: Shadow, Inc., is planning to repurchase part of its common stock by issuing corporate debt. As a…
A: given information debt to equity ratio is expected to rise from 30 percent to 50 percent. cost of…
Q: The board of directors of Blossom Corporation is considering two plans for financing the purchase of…
A: Bonds are trade-able assets that are issued by the companies. It provides a fixed interest rate to…
Q: Wide Angle Bhd is investing RM2 million in the construction of a new office building. Wide Angle Bhd…
A: 1. To record the issuance of the bonds on 1 January 2019: Date Account title and explanation…
Q: As the Finance Manager of Wynter's Bedding Manafacturing (WBM), you need to detemine the discount…
A: To meet the financial needs of the business, companies raise the funds from various sources. Company…
Q: On January 1, 2009, you examine two unlevered firms that operate in the same industry, have…
A: Comments; Multiple Questions asked a) Currently Beta has assets worth $80 million and 10 million of…
Q: NCC Corporation is considering building a new facility in Texas. To raise money for the capital…
A: Here, Weight of Bond (Wb) is 40% Weight of Retained Earnings (We) is 60% Interest Rate on Bond (rd )…
Q: Shinedown Company needs to ralse $55 million to start a new project and will ralse the money by…
A: Amount to be raised = $55 million Common stock = 65% Preferred stock = 15% Debt = 20% Flotation…
Q: JN Electronics is considering two plans for raising $1,000,000 to expand operations. Plan A is to…
A: Net income: It is the income earned after deducting all the expenses incurred whether they are…
Q: In the year 2013, Cirrus Aircraft Limited, a private jet manufacturer decided to open a new…
A: Bonds are financial instruments issued by private and government companies. It can be callable bonds…
Q: Lente, a manufacturer of energy-efficient lighting solutions, has had such success with its new…
A:
Q: onrad Corporation plans to raise $8 million to pay off its existing short-term bank loan of $2.4…
A: Debt Ratio is the ratio of total debt to total assets. in the balance sheet. Let us look at balance…
Q: (1) What is the market value of Shadow, Inc. before and after the repurchase announcement? (2) What…
A: Equity share capital refers capital which is raised by a corporation by offering shares.
Q: FCOJ, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity…
A: Given, FCOJ, Inc. Number of shares outstanding 7000 Price per share 44 Total debt 30%…
Q: Nabor Industries is considering going public but is unsure of a fair offering price for the company.…
A: Value of Nabor Industries' is calculated by estimating the present value of all the expected cash…
Q: Trapper Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a…
A: Given information, The plan I(All equity plan) No of shares outstanding = 205,000 Plan II(Levered…
Q: ABC is an all-equity firm with an estimated market value of $900,000. The firm sells $325,000 of…
A: Equity can be described as the amount raised through selling shares of the company.It is given…
Q: There are two breakpoints in NCC's capital structure. At what point does the first breakpoint occur?
A: first break even point = bond amount / percentage
Q: If the firm’s tax rate is 30 percent, what discount rate should you use to evaluate the equipment…
A: WACC refers to the joint cost of company's capital from all the sources of the company. It includes…
Q: The treasurer of Riley Coal Co. is asked to compute the cost of fixed income securities for her…
A: Before tax cost of debt = 11% Tax rate = 20% Preferred stock price (P) = $60 Dividend (D) = $6.40…
Q: Nabor Industries is considering going public but is unsure of a fair offering price for the company.…
A: In FCFF valuation, intrinsic value of a company is equal to present value of its cash flow.
Q: Southern Timber Company expects to have an EBIT of $10 million in the coming year, and its EBIT is…
A: According to M&M Model the value of levered firm will be sum of value of unlevered firm plus tax…
Q: Wide Angle Bhd is constructing a new office building at a cost of RM2 million.When building is in…
A: 1. To record the issuance of the bonds on 1 January 2019: Date Account title and explanation…
Q: You are working for an imports-exports company. In the current financial year, your company has a…
A: Hi, since you ahve asked a question with multiple-sub-parts, we will answer the first three as per…
Q: Dark Creek Corporation's CEO is selecting between two mutually exclusive projects. The company is…
A: Here, Pay off in Bad Economy in High Volatility is $2,900 Payoff in Good Economy in High Volatility…
Q: Blue Co. has a capital structure that consists of 25% equity and 75% liabilities. The company…
A: The solution requires the application of residual dividend policy. Here, the retained earnings would…
Delights, Inc., recently issued new securities to finance a new TV show. The project cost $35 million, and the company paid $2.2 million in flotation costs. In addition, the equity issued had a flotation cost of 7 percent of the amount raised, whereas the debt issued had a flotation cost of 3 percent of the amount raised. If the company issued new securities in the same proportion as its target capital structure, what is the company’s target debt-equity ratio?
Trending now
This is a popular solution!
Step by step
Solved in 6 steps with 5 images
- Pardon Me, Inc., recently issued new securities to finance a new TV show. The project cost $14.7 million, and the company paid $795,000 in flotation costs. In addition, the equity issued had a flotation cost of 7.7 percent of the amount raised, whereas the debt issued had a flotation cost of 3.7 percent of the amount raised. If the company issued new securities in the same proportion as its target capital structure, what is the company’s target debt−equity ratio?Wide Angle Bhd is constructing a new office building at a cost of RM2 million.When building is in the final stage of completion, Wide Angle Bhd faces financial difficulties as the company needs a fund amounted RM450,000 to complete the construction. The management team of Wide Angle Bhd decides to issue bonds instead of shares since that is a way to raise capital without diluting the current shareholders' equity. The RM450,000 of 8%, 5-year bonds were issued on 1 January 2019 and pay interest semi-annually on each 1 January and 1 July, which the payment is starting on July 2019. The market rate of bonds yield 6%. The financial year ends on 30 September. Wide Angle Bhd uses the effective interest method to amortize bond premium or discount. REQUIRED: (Show your workings. Round your answer to the nearest RM) Prepare the journal entry to record the issuance of the bonds on 1 January 2019. Prepare the journal entry to record the related transactions of bonds on 1 July 2019 and 30…A construction company has asked its chief financial officer to measure the cost of each specific form of capital as well as its weighted average cost of capital. The weighted average cost is measured using the following weights; 40% long-term debt, 10% preferred stock and 50% common stock equity. The company's tax rate is 40% Debt Company sells $980, a 10 year, $1,000 par value bond that pays a 10% coupon rate annually . Floatation cost is $35 of the per value and the bond is sold at discount of $20 per bond Preferred Stock : 8% preferred stock with par value of $100 is sold at $65 per share . In addition , the company has to pay an underwriting fee of $2 per share. Common stock : The current market value of the common stock is $50 per share . Next year , the dividend (2020 ) is 4 per share dividend payments , which have been approximately 60% of earnings per share in each of the last five years If the company decides to issue a new common equity , then the company must pay the the…
- Bonakid Inc. has decided to invest P10,000,000 in a new headquarters and needs to determine the best way to finance the construction. The firm currently has P50,000,000 of 10% bonds and 4,000,000 common shares outstanding. The firm can obtain the P10,000,000 of financing through a 10% bond issue or the sale of 1,000,000 shares of common stock. The firm has a 40 percent tax rate. What is the financial breakeven point for Stock Issue plan?You are working for an imports-exports company. In the current financial year, your company has a net income of $851,000 and plans to use a part of it as retained earnings for a new project which will cost $500,000 next year. The company's stock is currently listed and actively traded on ASX. Required: a) Calculate the amount of net income available for the company to pay dividends to current shareholders if it maintains a capital structure of 46% in debt funding and 54% in equity funding, assuming residual dividend theory applies. b) Your company is going to pay an annual dividend of $5 per share and extra dividend of $2 per share in 4 weeks. The standard process of settlement in ASX is T+2. If tomorrow is the ex-dividend date, when is the record date for dividend payment? calculate the ex-dividend price if today's market price is $43.5, given the dividend tax rate is 13%. c) Your company needs to make a payment of AUD 245,000 to a partner in Tokyo. If the direct…Yongman Electronics has decided to invest $10,000,000 in a new headquarters and needs to determine the best way to finance the construction. The firm currently has $50,000,000 of 10 percent bonds and 4,000,000 common shares outstanding. The firm can obtain the $10,000,000 of financing through a 10 percent bond issue or the sale of 1,000,000 shares of common stock. The firm has a 40 percent tax rate. What is the degree of financial leverage for each plan at $25,000,000 of EBIT? What is the financial breakeven point for each plan?
- Refi Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm’s debt-equity ratio is expected to rise from 30 percent to 50 percent. The firm currently has $2.7 million worth of debt outstanding. The cost of this debt is 9 percent per year. The firm expects to have an EBIT of $1.26 million per year in perpetuity and pays no taxes. a. What is the market value of the firm before and after the repurchase announcement? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the expected return on the firm’s equity before the announcement of the stock repurchase plan? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the expected return on the equity of an otherwise identical all-equity firm? (Do not round intermediate calculations and…Conrad Corporation plans to raise $8 million to pay off its existing short-term bank loan of $2.4 million and to increase total assets by $5,600,000. The bank loan bears an interest rate of 12 percent. The company's president owns 55% of the 4,000,000 shares of common stock and wishes to maintain control of the company. The company's tax rate is 21%. Balance sheet information is shown below. The company is considering two alternatives to raise the $8 million: (1) sell common stock at $20 per share, or (2) Sell bonds at a 12% coupon, each $1,000 bond carrying 25 warrants to buy common stock at $30 per share. Calculate the debt ratio under both alternatives Which alternative do you recommend and why? Current Liabilities $3,000,000 Common Stock, Par $0.50 2,000,000 Retained earnings 1,400,000 Total Assets $6,400,000 Total claims $6,400,000 Alternative 1: Common stock $20 Tax rate 35% # new shares 400,000 New financing…Conrad Corporation plans to raise $8 million to pay off its existing short-term bank loan of $2.4 million and to increase total assets by $5,600,000. The bank loan bears an interest rate of 12 percent. The company's president owns 55% of the 4,000,000 shares of common stock and wishes to maintain control of the company. The company's tax rate is 21%. Balance sheet information is shown below. The company is considering two alternatives to raise the $8 million: (1) sell common stock at $20 per share, or (2) Sell bonds at a 12% coupon, each $1,000 bond carrying 25 warrants to buy common stock at $30 per share. Current Liabilities $3,000,000 Common Stock, Par $0.50 2,000,000 Retained earnings 1,400,000 Total Assets $6,400,000 Total claims $6,400,000 Alternative 1: Common stock $20 Tax rate 35% # new shares 400,000 New financing $8,000,000 Par value per share $0.50 Existing Loan $2,400,000…
- Refi Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm’s debt-equity ratio is expected to rise from 35 percent to 50 percent. The firm currently has $3.1 million worth of debt outstanding. The cost of this debt is 8 percent per year. The firm expects to have an EBIT of $1.3 million per year in perpetuity and pays no taxes. a. What is the market value of the firm before and after the repurchase announcement? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the expected return on the firm’s equity before the announcement of the stock repurchase plan? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the expected return on the equity of an otherwise identical all-equity firm? (Do not round intermediate calculations and…Goodday Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 365,000 shares of stock outstanding. Under Plan II, there would be 285,000 shares of stock outstanding and $3.6 million in debt outstanding. The interest rate on the debt is 10 percent and there are not taxes. At what EBIT the EPS of the two plans is the same? $109,500 $1,095,000 or $0 $1,095,000 $0During the most current year, XYZ Corp paid $55,240 in interest and $80,400 in dividends. In order to fund a large expansion, the company also raised $297,000 in new equity and borrowed &197000 via the bond market, though a portion of the new borrowing was used to pay back $174,000 in bonds that were maturing this year. Calculate the cash flow to Shareholders.