ABC Company's bonds have a provision which stipulates that the ratio of senior debt to total assets will never rise above 45%. The company is at the limit of that ratio and it wishes to issue still another $25 million in senior debt. How much additional equity capital must it raise to comply with this restrictive provision?
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ABC Company's bonds have a provision which stipulates that the ratio of senior debt to total assets will never rise above 45%. The company is at the limit of that ratio and it wishes to issue still another $25 million in senior debt. How much additional equity capital must it raise to comply with this restrictive provision?
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- National Co. has P5,000,000 in current assets, P3,000,000 in current liabilities, and its initial inventory level is P1,000,000. The company plans to increase its inventory, and it will raise additional short-term debt (that will show up as notes payable on the balance sheet) to purchase the inventory. Assume that the value of the remaining current assets will not change. The company’s bond covenants require it to maintain a current ratio that is greater than or equal to 1.5. What is the maximum amount that the company can increase its inventory before it is restricted by these covenants?If a company issues $15,000,00 worth of bonds with a face interest rate equal to the market interest rate, the bonds will sell at an amount Group of answer choices A)less than $15,000,000. b)equal to $15,000,000. C)greater than $15,000,000. D)that can’t be determined from the information provided in the problem.Company A estimated that it will receive less interest payments and principal payments from its Available-for-Sale investments in Company B’s bonds. Company A does not intend to sell the bonds before they will recover. See the information below: Amortized cost of Company B bonds: $800,000. Discounted value of estimated payments at the interest rate on the date of bond inception: $650,000. Fair value of Company B bonds: $400,000. How will Company A record this assessment? a. Company A will debit Credit Loss Expense by $150,000. b. Company A will debit loss on impairment by $400,000. c. Company A will credit Investment account by $800,000. d. Company A will not record this assessment given that the investment is AFS. e. Company A will debit Credit Loss Expense by $400,000.
- The Bank of Willaine, Inc. issued an obligation to depositors who agree to pay ten (10) percent failsafe for one year. With the funds it acquires, The Bank of Willaine, Inc. can invest in different financial assets like in the stock market. What is the risk if the bank uses the funds it acquired from the depositors to invest in common stock? What liability type does the bank has by issuing that obligation?It is not unusual to issue long-term debt in conjunction with an arrangement under which lenders receive an option to buy common stock during all or a portion of the time the debt is outstanding. Sometimes the vehicle is convertible bonds; sometimes warrants to buy stock accompany the bonds and are separable. Interstate Chemical is considering these options in conjunction with a planned debt issue.“You mean we have to report $7 million more in liabilities if we go with convertible bonds? Makes no sense to me,” your CFO said. “Both ways seem pretty much the same transaction. Explain it to me, will you?”1. The differences in accounting for proceeds from the issuance of convertible bonds and of debt instruments with separate warrants to purchase common stock. 2. The underlying rationale for the differences. 3. Arguments that could be presented for the alternative accounting treatment.For the past three years, Sheridan Holdings Ltd. has held bonds as investments, which it accounted for using the amortized cost model. The bonds were purchased at a discount and are currently classified as Bond Investment at Amortized Cost. There have been no disposals of bonds since the purchase in early 2021. Due in part to Bonafacio's liquidity needs, and the recent market rate of interest increases, Sheridan has changed its plans concerning holding the bonds as fixed income. It now feels unwilling to wait for the bonds' maturity date to collect the proceeds from the maturity. Consequently, it was decided in December 2023 that the bonds should instead be accounted for as Fair Value-Net Income (FV-NI) Investments. Sheridan follows IFRS. The carrying amount and fair value of the investment portfolio of bonds appears below, along with the interest income recorded in the accounts: Year Ended December 31, 2023 2022 2021 Carrying amount at amortized cost $229,247 $225,725 $222,401 Fair…
- Grayson Corporation has $200 million of debenture bonds outstanding that have an unamortized discount of $28 million. Lower interest rates convinced the company to pay off the bonds now by purchasing them on the market where the price of the bonds is 90. What is Grayson's gain or loss on the retirement of the bonds? How would this gain or loss be shown in the financial statements? What is Grayson's gain or loss on the retirement of the bonds? (Use a minus sign or parentheses for a loss.) Gain (loss) on retirement of bonds In MillionsEdwards Construction currently has debt outstanding with a market value of $128,000 and a cost of 12 percent. The company has EBIT of $15,360 that is expected to continue in perpetuity. Assume there are no taxes. a-1. What is the value of the company's equity? (Do not round intermediate calculations. Leave no cell blank - be certain to enter "0" wherever required.) a-2. What is the debt-to-value ratio? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. What are the equity value and debt-to-value ratio if the company's growth rate is 4 percent? (Do not round intermediate calculations and round your "Debt-to-value" answer to 3 decimal places, e.g., 32.161.) c. What are the equity value and debt-to-value ratio if the company's growth rate is 9 percent? (Do not round intermediate calculations and round your "Debt-to-value" answer to 3 decimal places, e.g., 32.161.)Edwards Construction currently has debt outstanding with a market value of $104,000 and a cost of 12 percent. The company has EBIT of $12,480 that is expected to continue in perpetuity. Assume there are no taxes. a-1. What is the value of the company's equity? (Do not round intermediate calculations. Leave no cell blank - be certain to enter "O" wherever required.) a- What is the debt-to-value ratio? (Do not round intermediate calculations and round 2. your answer to the nearest whole number, e.g., 32.) b. What are the equity value and debt-to-value ratio if the company's growth rate is 6 percent? (Do not round intermediate calculations and round your "Debt-to- value" answer to 3 decimal places, e.g., 32.161.) c. What are the equity value and debt-to-value ratio if the company's growth rate is 10 percent? (Do not round intermediate calculations and round your "Debt-to- value" answer to 3 decimal places, e.g., 32.161.) Answer is complete but not entirely correct. a-1. Value of equity…
- Edwards Construction currently has debt outstanding with a market value of $104,000 and a cost of 12 percent. The company has EBIT of $12,480 that is expected to continue in perpetuity. Assume there are no taxes. a-1. What is the value of the company's equity? (Do not round intermediate calculations. Leave no cell blank - be certain to enter "0" wherever required.) a- What is the debt-to-value ratio? (Do not round intermediate calculations and round 2. your answer to the nearest whole number, e.g., 32.) b. What are the equity value and debt-to-value ratio if the company's growth rate is 6 percent? (Do not round intermediate calculations and round your "Debt-to- value" answer to 3 decimal places, e.g., 32.161.) c. What are the equity value and debt-to-value ratio if the company's growth rate is 10 percent? (Do not round intermediate calculations and round your "Debt-to- value" answer to 3 decimal places, e.g., 32.161.) Answer is complete but not entirely correct. a-1. Value of equity…Komissarov Company has a debt investment in the bonds issued by Keune Inc. The bonds were purchased at par for $400,000 and, at the end of 2020, have a remaining life of 3 years with annual interest payments at 10%, paid at the end of each year. This debt investment is classified as held-for-collection. Keune is facing a tough economic environment and informs all of its investors that it will be unable to make all payments according to the contractual terms. The controller of Komissarov has prepared the following revised expected cash flow forecast for this bond investment. Dec. 31 Expected Cash Flows 2021 $ 35,000 2022 35,000 2023 385,000 Total cash flows $455,000 Instructions a. Determine the impairment loss for Komissarov at December 31, 2020. b. Prepare the entry to record the impairment loss for Komissarov at December 31, 2020. c. On January 15, 2021, Keune receives a major capital infusion from a private equity investor. It informs Komissarov that the…Which of the following statements about Floating-Rate Debt is NOT true? A) Floating-rate debt has a stated interest rate that fluctuates in tandem with some interest rate benchmark (for instance, LIBOR). B)Floating-rate bonds allow companies to keep reported book value and fair value at the same level that protects investors from losses. C)The issuing company benefits from floating-rate debt when market interest rates increase. D)Floating-rate debt is issued at par.