You are the financial planner for Johnson Controls. Assume last year's profits were $880,000. The board of directors decided to forgodividends to stockholders and retire high-interest outstanding bonds that were issued 6 years ago at a face value of $1,490,000. Youhave been asked to invest the profits in a bank. The board must know how much money you will need from the profits earned to retirethe bonds in 8 years. Bank A pays 6% compounded quarterly, and Bank B pays 7% compounded annually. (Use Table 1 and Table 2provided.)Note: Do not round intermediate calculations. Round your answers to the nearest dollar amount.a-1. Which bank would you recommend?Bank ABank Ba-2. How much of the company's profit should be placed in the bank?Profitb. If you recommended that the remaining money not be distributed to stockholders but be placed in Bank B, how much would theremaining money be worth in 8 years?Future Value

The objective of the question is to determine which bank to choose for investment and how much of…

Answered: You are the financial planner for…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

Problem 1kM

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GoBank is a FinTech company, it is a Banking Ap. people helps you budget better, takes the stress out of spending abroad, and even lets people earn interest on your savings. In 2021, GoBank had a net income of $1,712,500.00. The company had 300 000 shares of $4 par value common stock and 25 000 shares of 8%, $100 par, preference stock outstanding throughout the year. Each share of preference stock is both cumulative and convertible. Each share of preference stock is convertible into four shares of common stock. Compute the following for 2021: a. Basic Earnings per share? b. The number of shares to be used in computing the diluted earnings per share
Your friend told you that she invested $1,000 in a portfolio of large-company stocks 5 years ago and also reinvested the dividends. Herinvestment grew to $3,456 as at today. Had she invested that same amount in a Government of Grenada bond she would have received $2,500even if she reinvested the 10 percent coupons paid on the bonds. REQUIRED How can you avoid the value of your stock from going down?
If an investor invested OMR 10,000 in Equity Share and OMR 8,000 in Bonds of an SAOG company in Muscat Stock Exchange and unfortunately that company is closing down / getting liquidated due to its mismanagement of funds. With the above information, how much money does he recovered from his investments if the company is settling only debt? Select one: A. OMR 18,000 B. OMR 2,000 C. OMR 10,000 D. OMR 8,000
Suppose Your Company where you work as Finance Director is Financed by both debt (bonds) and equity (shares). In the Board Meeting, it was agreed that you needed to raise extra funds for capital Expenditure ($1 Million). Since your company is listed on the Lusaka Stock Exchange, you sold 400 worth of bonds at $1,000 each at 5% coupon rate (A total of $400,000 raised). The company further issued stocks (shares) totaling 6,000 at $100 each with an expected return of 6% (cost of equity). The company therefore managed to raise the required amount of $1, 000,000 for the desired capital expenditure. Assume Corporate Tax Rate is 35% REQUIRED: Calculate the Weighted Average Cost of Capital (WACC) for your company
Shamrock Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Shamrock and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2018, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,150 notes, which are due on June 30, 2018, and September 30, 2018. Another note of $5,990 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Shamrock’s cash flow problems are due primarily to the company’s desire to finance a $302,830 plant expansion over the next 2 fiscal years through internally generated funds.The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years. SHAMROCK CORPORATIONBALANCE SHEETMARCH 31 Assets 2018 2017 Cash $18,160…
You are hired to replace Samson as Finance Manager at Fun-land Corporation. You are given the following information concerning Fun-land Corporation: Debt: 12,000 bonds outstanding that pay $28.5 semi-annual coupon payments, with 15 years to maturity. The bond currently sells for 95 percent of its face value of $1,000. The corporate tax rate is 28%. Common stock: 235,000 shares of common stock currently selling for $56.5 per share. The stock will pay dividend of $3.5 next year. The dividend is expected to grow by 4 percent per year indefinitely. (a) Samson told you that the company’s pre-tax cost of debt is 5.7%, calculated by annual coupon payment of $57 per bond dividend by the face value of $1,000. Do you agree with his estimation? Briefly explain. (b) Calculate the cost of equity and after-tax cost of debt of Fun-land Corporation respectively. [in % with 2 decimal places.] (c) Calculate the company’s WACC. [in % with 2 decimal places.]
Sage Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Sage and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2021, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $34,710 notes, which are due on June 30, 2021, and September 30, 2021. Another note of $5,960 is due on March 31, 2022, but he expects no difficulty in paying this note on its due date. Brown explained that Sage’s cash flow problems are due primarily to the company’s desire to finance a $297,780 plant expansion over the next 2 fiscal years through internally generated funds.The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years. Sage CorporationBalance SheetMarch 31 Assets 2021 2020 Cash $18,150 $12,590…
You were told that $1,000 was invested in a portfolio of large-company stocks 5 years ago and also the dividends were reinvested. The investment grew to $3,456 as at today. Had this same amount be invested in a Government bond she would have received $2,500 even if she reinvested the 10 percent coupons paid on the bonds. Given this information, critically discuss why anyone would want to invest in bonds rather than stocks? Further explain why the price of many individual stocks still go down, even when the overall stock market goes up. How can you avoid the value of your stock from going down?
Ayayai Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Ayayai and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2021, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $34,970 notes, which are due on June 30, 2021, and September 30, 2021. Another note of $5,970 is due on March 31, 2022, but he expects no difficulty in paying this note on its due date. Brown explained that Ayayai’s cash flow problems are due primarily to the company’s desire to finance a $300,080 plant expansion over the next 2 fiscal years through internally generated funds.The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years. Ayayai CorporationBalance SheetMarch 31 Assets 2021 2020 Cash $18,120 $12,410…
Shamrock Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Shamrock and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2021, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $34,920 notes, which are due on June 30, 2021, and September 30, 2021. Another note of $6,040 is due on March 31, 2022, but he expects no difficulty in paying this note on its due date. Brown explained that Shamrock’s cash flow problems are due primarily to the company’s desire to finance a $298,670 plant expansion over the next 2 fiscal years through internally generated funds.The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years. Shamrock CorporationBalance SheetMarch 31 Assets 2021 2020 Cash $18,060…
Samantha told you that she invested $1,000 in a portfolio of large-company stocks five years ago and reinvested the dividends. Her investment grew to $3,456 as of today. Had she invested that same amount in a Government of Antigua bond she would have received $2,500 even if she reinvested the 10% coupons paid on the bonds. Required: How can you avoid the value of your stock from going down?
You are an accountant for Davanzo Company. The president of the company calls you into her office and says, “I want to ask you about two issues. First, we need to sell one of our investments to raise $1 million because I think I have found a better investment. We could sell the bonds of Company X, which are currently worth $1 million even though they have an amortized cost basis of $950,000. But I don’t want to sell them because I like the steady stream of cash flow we get related to interest. Or we could sell the bonds in that dog, Company Z. These bonds are also worth $1 million, but they cost us $1.2 million. I hate to admit we made such a big mistake, and if they can somehow avoid bankruptcy, we may actually recover our investment. And then there’s that loss. I don’t want to report that. Second, I am going to use the $1 million to buy about 20% of the shares of Company M, but I seem to remember that there is some accounting rule that might affect how much we buy. I was also…

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