On April 1, 2025, Promise Company purchased 150,000 common shares in Delta Co. for $7 per share. The total number of common shares outstanding for Delta Co is 3.1 million. The management of Promise Co. needs to store itS cash in an investment and it believes that the market will eventually recover in a couple years and it might sell at that time. Delta Co. paid no dividends during the year and on December 31, 2025 its shares were trading at $6.65 per share. Management does not view investing as part of its operations.
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- Income, Cash Flow, and Future Losses On January L 2017, Cermack National Bank loaned 55,000,000 under a 2-year, zero coupon note to a real estate developer. The bank recognized interest revenue on this note of approximately $400,000 per year. Due to an economic downturn, the developer was unable to pay the $5,800,000 maturity amount on December 31, 2018. The bank convinced the developer to pay $800,000 on December 31, 2018, and agreed to extend $5,000,000 credit to the developer despite the gloomy economic outlook for the next several years. Thus, on December 31, 2018, the bank issued a new 2-year, zero coupon note to the developer to mature on December 31, 2020, for $6,000,000. The bank recognized interest revenue on this note of approximately $500,000 per year. The banks external auditor insisted that the riskiness of the new loan be recognized by increasing the allowance for uncollectible notes by $1,500,000 on December 31, 2018, and $2,000,000 on December 31, 2019. On December 31, 20201 the bank received $1,200,000 from the developer and learned that the developer was in bankruptcy and that no additional amounts would be recovered. Required: 1. Prepare a schedule showing annual cash flows fur the two notes in each of the 4 years.Income, Cash Flow, and Future Losses On January L 2017, Cermack National Bank loaned 55,000,000 under a 2-year, zero coupon note to a real estate developer. The bank recognized interest revenue on this note of approximately $400,000 per year. Due to an economic downturn, the developer was unable to pay the $5,800,000 maturity amount on December 31, 2018. The bank convinced the developer to pay $800,000 on December 31, 2018, and agreed to extend $5,000,000 credit to the developer despite the gloomy economic outlook for the next several years. Thus, on December 31, 2018, the bank issued a new 2-year, zero coupon note to the developer to mature on December 31, 2020, for $6,000,000. The bank recognized interest revenue on this note of approximately $500,000 per year. The banks external auditor insisted that the riskiness of the new loan be recognized by increasing the allowance for uncollectible notes by $1,500,000 on December 31, 2018, and $2,000,000 on December 31, 2019. On December 31, 20201 the bank received $1,200,000 from the developer and learned that the developer was in bankruptcy and that no additional amounts would be recovered. Required: Prepare a schedule showing the effect of the notes on net income in each of the 4 years.Income, Cash Flow, and Future Losses On January L 2017, Cermack National Bank loaned 55,000,000 under a 2-year, zero coupon note to a real estate developer. The bank recognized interest revenue on this note of approximately $400,000 per year. Due to an economic downturn, the developer was unable to pay the $5,800,000 maturity amount on December 31, 2018. The bank convinced the developer to pay $800,000 on December 31, 2018, and agreed to extend $5,000,000 credit to the developer despite the gloomy economic outlook for the next several years. Thus, on December 31, 2018, the bank issued a new 2-year, zero coupon note to the developer to mature on December 31, 2020, for $6,000,000. The bank recognized interest revenue on this note of approximately $500,000 per year. The banks external auditor insisted that the riskiness of the new loan be recognized by increasing the allowance for uncollectible notes by $1,500,000 on December 31, 2018, and $2,000,000 on December 31, 2019. On December 31, 20201 the bank received $1,200,000 from the developer and learned that the developer was in bankruptcy and that no additional amounts would be recovered. Required: Which figure, net income or net cash flow, does the better job of telling the banks stock-holders about the effect of these notes on the bank? Explain by reference to the schedules prepared in Requirements 1 and 2.
- Net profit of Green Forest Ltd in the current year is $2,355,000. The company is planning to launch a project that will requires an investment of $ 945,000 next year. The common stock of the company goes ex-dividend tomorrow. The stock closed at a price of $35.65 per share today. The company is paying a cash dividend of $4.50 a share and an extra cash dividend of $1.5 a share. a) Calculate the net profit available for dividend payment and dividend payout ratio of the company, assuming the capital structure of the company is 60% equity funding, 40% debt funding, using the Residual Dividend Payout Policy. b) Assuming the tax rate on dividends is 25%. Calculate the ex-dividend price tomorrow c) Blue Valley Ltd, a subsidiary of Green Forest Ltd will go under liquidation procedures due to the recent global economic recession in one-year time. The company just announced today it will be paying an annual dividend totally $7.5 million this year and $12.5 million one year from now as a…Net profit of Green Forest Ltd in the current year is $2,355,000. The company is planning to launch a project that will requires an investment of $ 945,000 next year. The common stock of the company goes ex-dividend tomorrow. The stock closed at a price of $35.65 per share today. The company is paying a cash dividend of $4.50 a share and an extra cash dividend of $1.5 a share. Required: Calculate the net profit available for dividend payment and dividend payout ratio of the company, assuming the capital structure of the company is 60% equity funding, 40% debt funding, using the Residual Dividend Payout Policy. Assuming the tax rate on dividends is 25%. Calculate the ex-dividend price tomorrow morningChristopher Joseph owner of Joseph’s Bottle Company Limited is considering opening a new factory to manufacture a new bottle product at a cost of $3.0 million. During the last 5years, the company has had 3 million shares in issue. The current market price of these shares (at 31 December 2018) is $1.45 ex-dividend. The company pays only one dividend each year (on 31 December) and dividends for the last five years have been as follows: Year Dividend per share (cents) 2018 14.1 2017 14.1 2016 12.1 2015 11.6 2014 11.0 The company has in issue $1 million 7% debentures redeemable on31 December 2022 at par. The current market price of these debentures is $83.60 ex-interest, and the interest is payable in one amount each year on 31 December. The company also has outstanding a $500,000 bank loan repayable on 31 December 2027. The rate of interest on this loan is variable, being fixed at 3% above the bank's base rate which is currently 5%. Calculate…
- Dividend Aristocrat Inc. (DA) borrowed $211,000 from Grow Business Bank to finance the purchase of equipment costing $158,250 and to provide $52,750 in cash. The legal documentation states that the loan matures in 20 years, and the principal is to be paid in annual instalments of $10,550. The terms of the loan also indicate that DA must maintain a current ratio of 1.25 and cannot pay dividends that will reduce retained earnings below $110,000. The 2020 year-end statement of financial position, immediately prior to the bank loan and the purchase of equipment, follows: Current assets Non-current assets Total assets Current Assets Total liabilities and shareholders' equity $521,000 Prepare the following statement of financial position assuming the maximum divided is declared and paid. Non-current Assets $97,240 423,760 Current Ratio $521,000 $ Current liabilities Long-term liabilities Common shares Retained earnings Dividend Aristocrat Inc. Current Liabilities $68,000 211,000 105,000…Amherst Corporation, an investment banking company, often has extra cash to invest. Suppose Amherst buys900 shares of Hurricane Corporation stock at $57 per share, representing less than 5% ofHurricane’s outstanding stock. Amherst expects to hold the Hurricane stock for one month andthen sell it. The purchase occurs on December 15, 2018. On December 31, the market price of ashare of Hurricane stock is $58 per share.Requirements1. What type of investment is this for Amherst? Give the reason for your answer.2. Record Amherst’s purchase of the Hurricane stock on December 15 and the adjustment tomarket value on December 31.3. Show how Amherst would report this investment on its balance sheet at December 31 andany gain or loss on its income statement for the year ended December 31, 2018.(a) Josef Robien CFA is valuing the common stock of British Cornuopia Bank (BCB). In this effort, Robien has made the following assumptions • EPS will be 20% of the beginning book value per share for each of the next 3 years • Book value per share is estimated at $10.62 on December 31, 2013 • BCB will pay cash dividends equal to 40% of earnings per share (EPS) • At the end of 3 years, BCB’s common stock will trade at 4 times its book value • Beta for BCB is 0.7, the risk free rate is 4.5% and the equity risk premium is 5% Calculate the value per share of BCB stock using the Residual Income Model .
- net profit of lily fashion house ltd in the current year is $2,575,000. the company is planning to launch a project that will requires an investment of $745000 next year. today the comapny stock has market value of $22 each share. lily fashion house has the current capital structure of 60% in equity and 40% in debt. required: a. the company is paying a cash dividend of $4.50 each share plus an extra cash dividend of $1.5 each share. tomorrow the stock will go ex-dividend. explain way there is ex-dividend date and ex-dividend price? calculate the ex-dividend price tomorrow morning. assuming the tax on dividend is 25%? b. how much dividend lily fashion house can pay its shareholders this year and what is dividend payout ratio of the company. assume the residual dividend payout policy applies? c. floral textile ltd. is adaughter company of the lily fashion house group and currently under a liquidiation plan due to severe business contraction caused by the covid 19 pandemic. the company…Net profit of Lily Fashion House Ltd in the current year is $2,575, 000. The company is planning to launch a project that will requires an investment of $745 000 next year. Today the company's stock has market value of $22/share. Lily Fashion House has the current capital structure of 60% in equity and 409% in debt. Required: a. The company is paying a cash dividend of $4.50/share plus an extra-cash dividend of $1.5/share. Tomorrow the stock will go ex-dividend. Explain why there is ex-dividend date and ex-dividend price? Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 25%? b. How much dividend Lily Fashion House can pay its shareholders this year and what is dividend payout ratio of the company. Assume the Residual Dividend Payout Policy applies? c. Floral Textile Ltd. is a daughter company of the Lily Fashion House Group and currently under a liquidation plan due to severe business contraction caused by the COVID 19 pandemic. The company plans to pay…Analysts expect ElectroSoft to generate $99.65141 million of free cash flow at the end of the current year. (Assume that cash flows occur on December 31 and today is January 1.) Analysts expect Electrosoft's cash flow to grow at 3% in perpetuity. Electrosoft has no debt and its shareholders require a return of 11%. There are 153.78293 million shares outstanding, and the shares trade for $8.10. ElectroSoft has announced a stock repurchase. It intends to buy 36.6 million shares at a price of $9 per share. The repurchase will be debt financed. After the repurchase, the company's debt-to-equity ratio will be 1/3 and it will maintain that ratio in perpetuity. The cost of debt is 5% and the tax rate is 35%. Answer the following questions. Part 1 What is the levered cost of equity after the repurchase? (Express your answer in percentage form rounded to one decimal place.) Cost of equity= Part 2 What is the company's WACC after the repurchase? (Express your answer in percentage form rounded to…
