INTER. ACCOUNTING - CONNECT+ALEKS ACCESS
10th Edition
ISBN: 9781264770335
Author: SPICELAND
Publisher: MCG
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Chapter 19, Problem 19.9DMP
Communication Case 19–11
Dilution
• LO19–9
“I thought I understood earnings per share,” lamented Brad Dawson, “but you’re telling me we need to pretend our convertible bonds have been converted! Or maybe not?”
Dawson, your boss, is the new manager of the Fabricating division of BVT Corporation. His background is engineering and he has only a basic understanding of earnings per share. Knowing you are an accounting graduate, he asks you to explain the questions he has about the calculation of the company’s EPS. His reaction is to your explanation that the company’s convertible bonds might be included in this year’s calculation.
“Put it in a memo!” he grumbled as he left your office.
Required:
Write a memo to Dawson. Explain the effect on earnings per share of each of the following:
1. Convertible securities.
2. Antidilutive securities.
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Problem 13-12 M&M and Taxes [LO 2]
Tatum can borrow at 6.75 percent. The company currently has no debt and the cost of
equity is 11.15 percent. The current value of the firm is $630,000. The corporate tax rate
is 22 percent. What will the value be if the company borrows $345,000 and uses the
proceeds to repurchase shares? (Do not round intermediate calculations and round
your answer to the nearest whole number, e.g., 32.)
Value of the firm
Problem 14-14 WACC [LO3]
Ursala, Incorporated, has a target debt-equity ratio of .85. Its WACC is 8.1 percent, and
the tax rate is 21 percent.
a. If the company's cost of equity is 12 percent, what is its pretax cost of debt? (Do not
round intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
b. If instead you know that the aftertax cost of debt is 6.2 percent, what is the cost of
equity? (Do not round intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
a. Cost of debt
b. Cost of equity
%
%
Chapter 19 Solutions
INTER. ACCOUNTING - CONNECT+ALEKS ACCESS
Ch. 19 - Prob. 19.1QCh. 19 - Prob. 19.2QCh. 19 - The Tax Code differentiates between qualified...Ch. 19 - Stock option (and other share-based) plans often...Ch. 19 - What is a simple capital structure? How is EPS...Ch. 19 - Prob. 19.6QCh. 19 - Blake Distributors had 100,000 common shares...Ch. 19 - Why are preferred dividends deducted from net...Ch. 19 - Prob. 19.9QCh. 19 - The treasury stock method is used to incorporate...
Ch. 19 - The potentially dilutive effect of convertible...Ch. 19 - How is the potentially dilutive effect of...Ch. 19 - Prob. 19.13QCh. 19 - If stock options and restricted stock are...Ch. 19 - Wiseman Electronics has an agreement with certain...Ch. 19 - Prob. 19.16QCh. 19 - When the income statement includes discontinued...Ch. 19 - Prob. 19.18QCh. 19 - Prob. 19.19QCh. 19 - (Based on Appendix B) LTV Corporation grants SARs...Ch. 19 - Prob. 19.1BECh. 19 - Prob. 19.2BECh. 19 - Prob. 19.14BECh. 19 - Prob. 19.15BECh. 19 - Prob. 19.10ECh. 19 - EPS; concepts; terminology LO195 through LO1913...Ch. 19 - FASB codification research LO192 The FASB...Ch. 19 - Prob. 19.28ECh. 19 - Communication Case 1911 Dilution LO199 I thought...Ch. 19 - Prob. 19.12DMP
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