d. What is the required return on common stock using CAPM?%e. Use the retention growth equation to estimate the expected growth rate. Then use the expected growth rate and the dividendgrowth model to estimate the required return on common stock.%f. What is the required return on common stock using the own-bond-yield-plus-judgmental-risk-premium approach?%g. Use the required return on stock from the CAPM model, and calculate the WACC. Travellers Inn (Millions of Dollars)Cash$ 10Accounts payable$ 10AccountsAccruals15receivableInventories20Short-term debtCurrent assets$ 50Current liabilities$ 25Net fixed assets50Long-term debt30Preferred stock (50,000 shares)5Common equityCommon stock (3,800,000 shares)$ 10Retained earnings30Total common equity$ 40Total assets$100Total liabilities and equity$100The following facts also apply to TII:1. The long-term debt consists of 29,412 bonds, each having a 20-year maturity, semiannual payments, a coupon rate of 7.8%, and aface value of $1,000. Currently, these bonds provide investors with a yield to maturity of 11.8%. If new bonds were sold, theywould have an 11.8% yield to maturity.2. TII's perpetual preferred stock has a $100 par value, pays a quarterly dividend per share of $2, and has a yield to investors of 8%.New perpetual preferred stock would have to provide the same yield to investors, and the company would incur a 3.55% flotationcost to sell it.3. The company has 3.8 million shares of common stock outstanding, a price per share =Ро$20, dividend per share =Do = $1,and earnings per shareEPSO = $5. The return on equity (ROE) is expected to be 8%.4. The stock has a beta of 1.6. The T-bond rate is 5%, and RPM is estimated to be 5%.5. TII's financial vice president recently polled some pension fund investment managers who hold TII's securities regarding whatminimum rate of return on TII's common would make them willing to buy the common rather than TII bonds, given that the bondsyielded 11.8%. The responses suggested a risk premium over TII bonds of 3 percentage points.6. TII is in the 25% federal-plus-state tax bracket.20

Name: d. What is the required return on common stock using CAPM?%e. Use the
Uploaded: 2024-03-20T06:51:32.000Z
Channel: Bartleby
Description: d. What is the required return on common stock using CAPM?%e. Use the retention growth equation to estimate the expected growth rate. Then use the expected growth rate and the dividendgrowth model to estimate the required return on common stock.%f.

Required Rate of Return: It represents the expected return on common stock from the investors. It…

Business

Finance

What is the required return on common stock using CAPM? % Use the retention growth equation to estimate the expected growth rate. Then use the expected growth rate and the dividend growth model to estimate the required return on common stock. % What is the required return on common stock using the own-bond-yield-plus-judgmental-risk-premium approach? %

What is the required return on common stock using CAPM? % Use the retention growth equation to estimate the expected growth rate. Then use the expected growth rate and the dividend growth model to estimate the required return on common stock. % What is the required return on common stock using the own-bond-yield-plus-judgmental-risk-premium approach? %

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter14: Statement Of Cash Flows

Section: Chapter Questions

Problem 38E: Tidwell Company experienced the following during 20X1: a. Sold preferred stock for 480,000. b....

See similar textbooks

Similar questions

Tidwell Company experienced the following during 20X1: a. Sold preferred stock for 480,000. b. Declared dividends of 150,000 payable on March 1, 20X2. c. Borrowed 575,000 from a bank on a 2-year note. d. Purchased 80,000 of its own common stock to hold as treasury stock. e. Repaid 5-year bonds issued for 400,000 that mature and are due in December. Required: Prepare the net cash from financing activities section of the statement of cash flows.
The following data apply to A.L Kaiser & Company ($ million) : Cash and Equivalents $ 100.00Fixed Assets $ 283.50Sales $1,000.00Net Income $ 50.00Quick Ratio $ 2.0xCurrent Ratio 3.0xDSO 40.0 DaysROE 12.0% Kaiser has no preferred stock - Only common equity, current liabilities, and long-term debt.a. Find Kaiser's (1) Account Receivable, (2) Current Liabilities, (3) Current Assets, (4) Total Assets, (5) ROA, (6) common equity, and (7) long-term debt b. In part (a), you should found Kaiser's accounts receivable (A/R) to be $111.1 million. If Kaiser could reduce its DSO from 40 days to 30 days while holding other things constant, how much cash would it generate? if this cash were used to buy back common stock (at book value) and thereby reduce the amount of common equity, how would this action affect the company's (1) ROE, (2) ROA, and (3) total deby/total assets ratio?
Sandy Corporation’s balance sheet at January 2, 20x5 is as follows:Sandy-Dr(Cr)Cash and receivables P200,000,000Inventories 600,000,000.00Property, plant and equipment, net 7,500,000,000.00 Current liabilities (400,000,000.00)Long-term debt (7,200,000,000.00)Capital stock (7,200,000.00)Retained earnings (25,000,000.00)Accumulated othercomprehensive income (5,000,000.00) An analysis of Sandy’s assets and liabilities reveals that book values of some reported itemsdo not reflect their market values at the date of acquisition:● Inventories are overvalued by P200,000,000● Property, plant and equipment is overvalued by P2,000,000,000● Long-term debt is undervalued by P100,000,000 On January 2, 20x5, Velasco issues new stock with a market value of P700,000,000 toacquire the assets and liabilities of Sandy. Stock registration fees are P100,000,000, paid incash. Consulting, accounting, and legal fees connected with the merger are P150,000,000,paid in cash. In addition, Velasco enters into an…
Presented below is the trial balance of Walter Corporation at December 31, 2020.Cash 197,000Sales 7,900,000Trading Securities (at cost, P145,000) 153,000Cost of goods sold 4,800,000Long-term investments in bonds 299,000Long-term investment in share capital - ordinary 277,000Short-term notes payable 90,000Accounts payable 455,000Selling expenses 2,000,000Investment revenue 63,000Land 260,000Buildings 1,040,000Dividends payable 136,000Accrued liabilities 96,000Accounts receivables 435,000Accumulated Depreciation – Building 352,000Allowance for doubtful accounts 25,000Administrative Expenses 900,000Interest Expense 211,000Inventories 597,000Provision for pension (long term) 80,000Long term notes payable 900,000Equipment 600,000Bonds Payable 1,000,000Accumulated Depreciation – Equipment 60,000Franchise 160,000Shares Capital – Ordinary 1,000,000Treasury Shares 191,000Patent 195,000Retained Earnings 78,000Other comprehensive income 80,000 Requirements:1. How much is the total assets?2. How…
The following data apply to Jacobus and Associates (millions of dollars): Cash and marketable securities $ 100,00Fixed assets $ 283,50Sales $1.000,00Net Income $ 50,00Quick ratio 2,0Current ratio 3,0DSO 40,55 daysROE 12%Jacobus has no preferred stock – only common equity, current liabilities and long termdebt.a. Find Jacobus’s (1) Account receivable, (2) current liabilities, (3) current assets, (4)Total assets, (5) ROA, (6) common equity, and (7) long term debtb. in part a, you should have found Jacobus’s accounts receivable = $111,1 million. IfJacobus could reduce its DSO fro, 40,55 days to 30,4 days while holding other thingsconstant, how much cash would generate? If this cash were used to buy backcommon stock (at book value), this reducing the amount of common equity, howwould this affect (1) the ROE, (2) the ROA, (3) the ratio of total debt to total assets?
Myers Company provides you with the following condensed balance sheet information. Assets 0000 Liabilities and Stockholders’ Equity Current assets $ 40,000 Current and long-term liabilities 00 $100,000 Equity investments 60,000 Stockholders’ equity 00 00 Equipment (net) 250,000 00Common stock ($5 par) $ 20,000 00 Intangibles $160,000 00Paid-in capital in excess of par 110,000 00 00Total assets $410,000 00Retained earnings 0180,000 $310,000 00 00 0000Total liabilities and stockholders’ equity 00 $410,000 Instructions For each of the following transactions, indicate the dollar impact (if any) on the following five items: (1) total assets, (2) common stock, (3) paid-in capital in excess of par, (4) retained earnings, and (5) stockholders’ equity. (Each situation is independent.) a. Myers declares and pays a $0.50 per share cash dividend. b. Myers declares and issues a 10% stock dividend when the market price of the stock is $14 per share. c.…
Celloscope Ltd. Balance Sheet 31-Dec-19 Current Assets Cash 18000 Accounts Receivable 20000 Inventory 12000 Prepaid Insurance 600 Sub total 50600 Non-current Assets Land 80000 Building 60000 Less: Accumulated Depreciation 10,000 50000 Sub total 130000 Total Assets 180600 Current Liabilities Accounts payable 50000 Taxes Payable 8000 Sub total 58000 Non-Current Liabilities Bonds Payable (10%) 40000 40000 Owners’ Equity Share Capital 60000 Retained Earning 22600 Sub total 82600 Total Liabilities and Owners’ Equity 180600 The following are expected in the next 3 months January…
Pip’s Paw Patrol had the following account Balances on Dec 31, 2021:BOOK Value FMVCurrent Assets $225,000 $250,000Land $320,000 $350,000Building $450,000 $650,000Accum Dep ($50,000)Equipment $195,000 $50,000Accum Dep ($100,000)Current Liabilities ($75,000) ($75,000)Bonds Payable ($200,000) ($300,000)Common Stock ($65,000)Paid in Capital ($700,000)Pip’s industry anticipates an 8% return on investments of P/E/P before accumulated depreciation andPip generated a $120,000 profit in 2021. Pip would like to be paid for 4 years of excess earnings.REQUIRED:a. Calculate the Goodwillb. Calculate the pricec. Record the purchase of the Pip Paw Patrol on the books of the BUYER, assume they issued100,000 shares of $2 par value common stock and paid $40,000 in legal and accounting fees and$50,000 in stock issuance costs to their broker.d. Record the sale of the company on the books of the seller.
Pip’s Paw Patrol had the following account Balances on Dec 31, 2021:BOOK Value FMVCurrent Assets $225,000 $250,000Land $320,000 $350,000Building $450,000 $650,000Accum Dep ($50,000)Equipment $195,000 $50,000Accum Dep ($100,000)Current Liabilities ($75,000) ($75,000)Bonds Payable ($200,000) ($300,000)Common Stock ($65,000)Paid in Capital ($700,000)Pip’s industry anticipates an 8% return on investments of P/E/P before accumulated depreciation andPip generated a $120,000 profit in 2021. Pip would like to be paid for 4 years of excess earnings.REQUIRED:a. Calculate the Goodwillb. Calculate the price
Pip’s Paw Patrol had the following account Balances on Dec 31, 2021:BOOK Value FMVCurrent Assets $225,000 $250,000Land $320,000 $350,000Building $450,000 $650,000Accum Dep ($50,000)Equipment $195,000 $50,000Accum Dep ($100,000)Current Liabilities ($75,000) ($75,000)Bonds Payable ($200,000) ($300,000)Common Stock ($65,000)Paid in Capital ($700,000)Pip’s industry anticipates an 8% return on investments of P/E/P before accumulated depreciation andPip generated a $120,000 profit in 2021. Pip would like to be paid for 4 years of excess earnings.REQUIRED:c. Record the purchase of the Pip Paw Patrol on the books of the BUYER, assume they issued100,000 shares of $2 par value common stock and paid $40,000 in legal and accounting fees and$50,000 in stock issuance costs to their broker.d. Record the sale of the company on the books of the seller
AA Corporation’s balance sheet as of January 1, 20x4, reflected the following balances:Cash and Receivables P80,000 Accounts payable P40,000Inventory 120,000 Income tax payable 60,000Land 70,000 Bonds payable 200,000Buildings and equipment (net) 480,000 Common stock 250,000 Retained earnings 200,000Total assets P750,000 Total Liabilities and Eq P750,000PP Corporation, which had just entered into an active acquisition program, acquired 100 percent of AA’s commons stock on January 2, 20x4, for P576,000. A careful review of the fair value of AA’s assets and liabilities indicated the following:Accounts…
Peoples Bank Ltd.Balance sheetAs at 31/03/2021Assets $(000) Liab. & Equity $(000)Cash 50,000 Payables 50,000Short term Invest 50,000 short term deposits 500,000Long term Invest. 180,000 long term deposits. 180,000Loans 550,000 Long-term bonds 50,000Other 50,000 Equity 100,000Total 880,000 880,000 The long-term investment portfolio comprises shares in an associate company (25%), azero-coupon bond (25%), government fixed rate bonds (40) and shares in publicly tradedcompanies (10%).The loan portfolio is composed as follows: 10% residential mortgages, 50% consumerand 40% commercial. The loan portfolio has a 5% delinquency, and the average return is8%. Fixed rate loans are 60% and floating rate 40%.Deposits are primarily short term. The renewal rate is declining and expected to continueinto the medium term. The average deposit rate is 4%.Interest rates are expected to rise in the short term for both, loans and deposits. A. Based on the balance sheet and the information above, identify…