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 September 2019. Assume that Wide Angle Bhd was unable to sell the bonds dated 1 January 2019 until 1 March 2019, two months after they are dated. Explain the accounting treatment to record issuance of the bonds between interest date and interest expenses on 1 July 2019.

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

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

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 8P

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Wide Angle Bhd is investing RM2 million in the construction of a new office building. Wide Angle Bhd is having financial issues as the building nears completion, since the business need a capital of RM450,000 to finish the project. Wide Angle Bhd's management team decides to issue bonds rather than shares in order to raise cash without eroding current shareholders' stake. The RM450,000 5-year bonds with an interest rate of 8% were issued on January 1, 2019 and pay interest semi-annually on January 1 and July 1 each year, with the first payment beginning in July 2019. Bonds with a market rate of 6% interest are available. The fiscal year comes to a conclusion on September 30th. Wide Angle Bhd amortises its debt using the effective interest rate. bond premium or discount.Needed: (Exhibit your methods.) Your answer should be rounded up to the nearest RM.) Prepare a journal entry to document the bond issue on January 1, 2019. Prepare a journal entry to record the bond trades on July 1st…
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?
FCOJ, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 30 percent debt. Currently there are 18,000 shares outstanding and the price per share is $49. EBIT is expected to remain at $63,000 per year forever. The interest rate on new debt is 10 percent, and there are no taxes. a. Ms. Brown, a shareholder of the firm, owns 250 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What will Ms. Brown’s cash flow be under the proposed capital structure of the firm? Assume that she keeps all 250 of her shares. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. Assume that Ms. Brown unlevers her shares and re-creates the original capital structure. What is her cash flow now?…
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Asempa limited which manufactures household utensils is currently financed by four million ordinary shares of GHS1.00 each par value. The shares have a market value of GHS3,50 per share, No debt finance has been used by the company. At a recent emergency board meeting to discuss the way forward as a results of the negative impact of the COVID 19 pandemic on the performance of the company, the managing Director proposed to undertake a massive project expansion next year and suggested that the proposed project will be financed entirely by fixed interest debt , He proposed that, the project be financed by GHS5,000,000 irredeemable debentures to be issued at par. The company’s Director of finance indicated that it is only possible to obtain debt finance equal to the entire cost of the project as Asempa has previously been all equity financed and has therefore considerable unused borrowing capacity. According to his calculation after obtaining the debt capital for the project,…
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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…
Finch, Incorporated, is debating whether or not to convert its all-equity capital structure to one that is 20 percent debt. Currently, there are 17,000 shares outstanding and the price per share is $47. EBIT is expected to remain at $39,100 per year forever. The interest rate on new debt is 6.5 percent, and there are no taxes. Allison, a shareholder of the firm, owns 150 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16 What will Allison's cash flow be under the proposed capital structure of the firm? Assume she keeps all 150 of her shares. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Assume that Allison unlevers her shares and re-creates the original capital structure. What is her cash flow now?
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