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AccountingCornerstones of Financial Accounting4th Edition

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Chapter 9, Problem 103.3C
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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Problem 91PSA
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Problem 91PSB
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Problem 93PSB
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Problem 95PSB
Problem 96PSB
Problem 97PSB
Problem 98PSB
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Problem 100C
Problem 101.1C
Problem 101.2C
Problem 102.1C
Problem 102.2C
Problem 102.3C
Problem 102.4C
Problem 103.1C
Problem 103.2C
Problem 103.3C
Problem 103.4C
Problem 104.1C
Problem 104.2C
Problem 104.3C
Problem 104.4C
Problem 105.1C
Problem 105.2C
Problem 105.3C
Problem 105.4C
Problem 105.5C
Problem 105.6C
Problem 105.7C
Problem 106.1C
Problem 106.2C
Problem 106.3C
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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Leverage

Cook Corporation issued financial statements at December 31, 2019, that include the following information:

Balance sheet at December 31,2019

Assets $8,000,000

Liabilities $1,200,000

Stockholders' equity (300,000 shares) $6,800,000

Income statement for 2019:

income from operations $1,200,000

Less: Interest expense (100,000)

Income before taxes $1,100,000

Less: Income taxes expense (0,30) (330,000)

Net income $ 770,000

The levels of assets, liabilities, stockholders' equity, and operating income have been stable in recent years; however, Cook Corporation is planning a 51,800,000 expansion program that will increase income from operations by $350,000 to $1,550,000, Cook is planning to sell 8.5% notes at par to finance the expansion.

Required:

3. Suppose income from operations will increase by only $150,000. Would this use of leverage be advantageous to Cook’s stockholders? Explain

To determine

Concept introduction:

Basic Earnings per share:

The Basic Earnings per share is the amount of net income earned by each common share outstanding. The Earnings per share calculated by with help of following formula:

Basic Earnings per share=Net Income - Preferred DividendWeighted Average Common Shares Outstanding

 Net Income available to common stockholder = Net income – Preferred Dividend

To indicate:

If the leverage would be advantageous to the shareholders if the income from operations increase by only $150,000.

Explanation

The Earnings per share before expansion is calculated as follows:

Net income (A) $ 770,000
Number of Equity Shares (B) 300,000
Earnings per share (A/B) $ 2.57

The Earnings per share after expansion is calculated as follows:

Income from Operation (A) $ 1,350,000
Less: Interest Expense (B) 100000+(1800000*8...

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Ch-9 P-1DQCh-9 P-2DQCh-9 P-3DQCh-9 P-4DQCh-9 P-5DQCh-9 P-6DQCh-9 P-7DQCh-9 P-8DQCh-9 P-9DQCh-9 P-10DQ
Ch-9 P-11DQCh-9 P-12DQCh-9 P-13DQCh-9 P-14DQCh-9 P-15DQCh-9 P-16DQCh-9 P-17DQCh-9 P-18DQCh-9 P-19DQCh-9 P-20DQCh-9 P-21DQCh-9 P-22DQCh-9 P-1MCQCh-9 P-2MCQCh-9 P-3MCQCh-9 P-4MCQCh-9 P-5MCQCh-9 P-6MCQCh-9 P-7MCQCh-9 P-8MCQCh-9 P-9MCQCh-9 P-10MCQCh-9 P-11MCQCh-9 P-12MCQCh-9 P-13MCQCh-9 P-14MCQCh-9 P-15MCQCh-9 P-16MCQCh-9 P-17MCQCh-9 P-18MCQCh-9 P-19MCQCh-9 P-20MCQCh-9 P-21MCQCh-9 P-22CECh-9 P-23CECh-9 P-24CECh-9 P-25CECh-9 P-26CECh-9 P-27CECh-9 P-28CECh-9 P-29CECh-9 P-30CECh-9 P-31CECh-9 P-32CECh-9 P-33CECh-9 P-34CECh-9 P-35CECh-9 P-36CECh-9 P-37CECh-9 P-38CECh-9 P-39CECh-9 P-40CECh-9 P-41CECh-9 P-42CECh-9 P-43CECh-9 P-44BECh-9 P-45BECh-9 P-46BECh-9 P-47BECh-9 P-48BECh-9 P-49BECh-9 P-50BECh-9 P-51BECh-9 P-52BECh-9 P-53BECh-9 P-54BECh-9 P-55BECh-9 P-56BECh-9 P-57BECh-9 P-58BECh-9 P-59BECh-9 P-60BECh-9 P-61BECh-9 P-62BECh-9 P-63BECh-9 P-64BECh-9 P-65BECh-9 P-66ECh-9 P-67ECh-9 P-68ECh-9 P-69ECh-9 P-70ECh-9 P-71ECh-9 P-72ECh-9 P-73ECh-9 P-74ECh-9 P-75ECh-9 P-76ECh-9 P-77ECh-9 P-78ECh-9 P-79ECh-9 P-80ECh-9 P-81ECh-9 P-82ECh-9 P-83ECh-9 P-84ECh-9 P-85ECh-9 P-86ECh-9 P-87ECh-9 P-88ECh-9 P-89ECh-9 P-90ECh-9 P-91PSACh-9 P-92PSACh-9 P-93PSACh-9 P-94PSACh-9 P-95PSACh-9 P-96PSACh-9 P-97PSACh-9 P-98PSACh-9 P-99PSACh-9 P-91PSBCh-9 P-92PSBCh-9 P-93PSBCh-9 P-94PSBCh-9 P-95PSBCh-9 P-96PSBCh-9 P-97PSBCh-9 P-98PSBCh-9 P-99PSBCh-9 P-100CCh-9 P-101.1CCh-9 P-101.2CCh-9 P-102.1CCh-9 P-102.2CCh-9 P-102.3CCh-9 P-102.4CCh-9 P-103.1CCh-9 P-103.2CCh-9 P-103.3CCh-9 P-103.4CCh-9 P-104.1CCh-9 P-104.2CCh-9 P-104.3CCh-9 P-104.4CCh-9 P-105.1CCh-9 P-105.2CCh-9 P-105.3CCh-9 P-105.4CCh-9 P-105.5CCh-9 P-105.6CCh-9 P-105.7CCh-9 P-106.1CCh-9 P-106.2CCh-9 P-106.3C

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