Compute
a.
To calculate: The costs of retained earnings and new common stock according to the given circumstances.
Introduction:
Retained Earnings (Ke):
They are considered the profits of the company not distributed as dividend to shareholders. They are reserved for the purpose of reinvesting into the business, that is, for the expansion of the business.
New common stock (Kn):
Also termed as ordinary shares, it is a type of security that represents corporate equity ownership. It is the best means to earn a real rate of return ahead of inflation in the long run.
Answer to Problem 17P
The costs of retained earnings and new common stock are 15.14% and 15.94%, respectively.
Explanation of Solution
Calculation of the cost of retained earnings (Ke):
Calculation of the cost of common stock (Kn):
b.
To calculate: The costs of retained earnings and new common stock according to the given circumstances.
Introduction:
Retained Earnings (Ke):
They are considered the profits of the company not distributed as dividend to shareholders. They are reserved for the purpose of reinvesting into the business, that is, for the expansion of the business.
New common stock (Kn):
Also termed as ordinary shares, it is a type of security that represents corporate equity ownership. It is the best means to earn a real rate of return ahead of inflation in the long run.
Answer to Problem 17P
The costs of retained earnings and new common stock are 7.79% and 7.86%, respectively.
Explanation of Solution
Calculation of the cost of retained earnings (Ke):
Calculation of the cost of common stock (Kn):
c.
To calculate: The costs of retained earnings and new common stock according to the given circumstances.
Introduction:
Retained Earnings (Ke):
They are considered the profits of the company not distributed as dividend to shareholders. They are reserved for the purpose of reinvesting into the business, that is, for the expansion of the business.
New common stock (Kn):
Also termed as ordinary shares, it is a type of security that represents corporate equity ownership. It is the best means to earn a real rate of return ahead of inflation in the long run.
Answer to Problem 17P
The costs of retained earnings and new common stock are 15.33% and 16.07%, respectively.
Explanation of Solution
Calculation of the cost of retained earnings (Ke):
Calculation of the cost of common stock (Kn):
Working Note:
Calculation of dividend:
d.
To calculate: The costs of retained earnings and new common stock according to the given circumstances.
Introduction:
Retained Earnings (Ke):
They are considered the profits of the company not distributed as dividend to shareholders. They are reserved for the purpose of reinvesting into the business, that is, for the expansion of the business.
New common stock (Kn):
Also termed as ordinary shares, it is a type of security that represents corporate equity ownership. It is the best means to earn a real rate of return ahead of inflation in the long run.
Answer to Problem 17P
The costs of retained earnings and new common stock are 17.7% and 18.26%, respectively.
Explanation of Solution
Calculation of the cost of retained earnings (Ke):
Calculation of the cost of common stock (Kn):
Working Note:
Calculation of dividend:
Want to see more full solutions like this?
Chapter 11 Solutions
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
- (A/P, 12% quarterly,8 yrs) has a value equals to Select one: a. 0.049 b. 0.048 c. 0.078 d. 0.0426arrow_forwardIf current assets are $112,000 and current liabilities are $56,000, what is the current ratio?A. 200 percentB. 50 percentC. 2.0D. $50,000arrow_forwardRefer to the original data. Compute the company's margin of safety in both dollar and percentage terms. (Round your percentage answer to 2 decimal places (i.e. 0.1234 should be entered as 12.34).)arrow_forward
- If current assets are $112,000 and current liabilities are $56,000, what is the current ratio? A. 200 percent B. 50 percent C. 2.0 D. $50,000arrow_forwardCompute for the price-earnings ratio if the earnings per share are Php 5.50: Market Value per share P.E Ratio 1 27.500 2 30.250 3 22.000 4 17.875 5 28.875arrow_forward1.If Gwen, Inc. has a total debt ratio of 0.8, a total asset turnover of 0.33, and a net profit margin of 10%. Calculate the return on equity (ROE). Enter percentages as decimals and round to 4 decimals.arrow_forward
- If the value of liabilities is 80000 OMR and owner's equity is 30000 OMR. Calculate the amount of Assets? Select one: a. 110000 OMR b. 100000 OMR c. 90000 OMR d. 10000 OMRarrow_forwardABC LTD's figures for an accounting period include sales R25m, cost of sales R15m and equity R5m. The gross profit margin for the period is_______. Select one: a. 60% b. 50% c. 30% d. 40%arrow_forwardGiven a profit margin = 15%, ROE = 25%, D/E = 1.25, and assets = $600, please calculate sales.arrow_forward
- Reno Revolvere has an EPS of $1.50, a cash flow per share of $3.00, and a price/cash flow ratio of 8.0. What is its P/E ratio?arrow_forwardUse the following information for Cronos Group, Inc. (CRON): EBIT / Revenue 25.50% Government Tax Rate 42.50% Revenue / Assets 1.95 times Current Ratio 3.15 times EBT / EBIT 0.80 times Assets / Equity 2.00 times Its interest coverage ratio is closest to: A. 2.50. B. 5.00. C. 7.15. D. 9.25.arrow_forwardBarry Co. has a net monetary assets of P75,000 with an quick acid test ration of 1.25. Inventories are P165,000. What is the current Ratio?arrow_forward
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning