Case D: Miller Bikes is a national chain of upscale bicycle shops. The company has followed a successful strategy of locating nearmajor universities. Miller has the opportunity to expand into several new markets but must raise additional capital. The company hasengaged in the following transactions:• Issued 45,000 additional shares of common stock. The stock has a $1 par value. The shares sold for $25 per share.• Issued bonds. These bonds have a face value of $1,000,000 and a coupon rate of 10 percent. The bonds mature in 10 years and payinterest semiannually. When the bonds were issued, the annual market rate of interest was 8 percent.Required:1. Record the sale of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the firstaccount field.)2. Record the issuance of the stock. (If no entry is required for a transaction/event, select "No journal entry required" in the firstaccount field.)NoA8CTransaction1a1b.02CashBonds payablePremium on bonds payableCashBonds payableAnswer is not complete.General JournalCashCommon stockAdditional paid-in capital000 00000Debit1,135,9031,135,9031,125,000Credit1,000,000135,90345,0001,000,000 Case D: Miller Bikes is a national chain of upscale bicycle shops. The company has followed a successful strategy of locating nearmajor universities. Miller has the opportunity to expand into several new markets but must raise additional capital. The company hasengaged in the following transactions:• Issued 45,000 additional shares of common stock. The stock has a $1 par value. The shares sold for $25 per share.• Issued bonds. These bonds have a face value of $1,000,000 and a coupon rate of 10 percent. The bonds mature in 10 years and payinterest semiannually. When the bonds were issued, the annual market rate of interest was 8 percent.Required:1. Record the sale of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the firstaccount field.)2. Record the issuance of the stock. (If no entry is required for a transaction/event, select "No journal entry required" in the firstaccount field.)NoA8CTransaction1a1b.02CashBonds payablePremium on bonds payableCashBonds payableAnswer is not complete.General JournalCashCommon stockAdditional paid-in capital000 00000Debit1,135,9031,135,9031,125,000Credit1,000,000135,90345,0001,000,000

Journal entry is the primary step to record the transactions in the books of accounts. The increase…

Answered: Case D: Miller Bikes is a national…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Consider the following facts to solve problems 1 through 5. A. The capital for investment of Executive Consultants, Inc. is as follows: Sources of capital Capital Debt (corporate bonds) $4,100,000 Prefferent shares $2,200,000 Common shares $2,800,000 B. To generate the $ 4.1 million of corporate bond capital, they issued bonds at $ 965 par value, with an annual coupon of $ 100 for the next 10 years, with a flotation cost of $ 10 per bond.C. The issue of preferred shares has a cost of $ 5 per share and will pay a dividend of 10% of its par value of $ 110 per preferred share.D. The risk-free rate is 3.45% and the market return is 11.25%. The company's beta coefficient is 1.23.E. Executive Consultants, Inc. has a tax liability of 35%.Problems:You must submit the procedure and all the calculations. 1. Calculate the cost of equity capital (common shares).2. Determine the weighted average cost of capital (WACC) for the firm.
Consider the following facts to solve problems 1 through 5. A. The capital for investment of Executive Consultants, Inc. is as follows: Sources of capital Capital Debt (corporate bonds) $4,100,000 Prefferent shares $2,200,000 Common shares $2,800,000 B. To generate the $ 4.1 million of corporate bond capital, they issued bonds at $ 965 par value, with an annual coupon of $ 100 for the next 10 years, with a flotation cost of $ 10 per bond.C. The issue of preferred shares has a cost of $ 5 per share and will pay a dividend of 10% of its par value of $ 110 per preferred share.D. The risk-free rate is 3.45% and the market return is 11.25%. The company's beta coefficient is 1.23.E. Executive Consultants, Inc. has a tax liability of 35%.Problems:You must submit the procedure and all the calculations.1. Determine the capital structure of Executive Consultants, Inc.2. Calculate the cost of debt.3. Calculate the cost of preferred equity.4. Calculate the cost of…
Required information [The following information applies to the questions displayed below.] Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $17 million gaming center: a. Issue $17 million of 6% bonds at face amount.b. Issue 1 million shares of common stock for $17 per share. Required:1. Assuming bonds or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. (Enter your answer in dollars, not millions. (i.e., $5.5 million should be entered as 5,500,000). Round your "Earnings per Share" to 2 decimal places. Round your "Earnings per Share" to 2 decimal places.)
Suppose Your Company where you work as Finance Director is Financed by both debt (bonds) and equity (shares). In the Board Meeting, it was agreed that you needed to raise extra funds for capital Expenditure ($1 Million). Since your company is listed on the Lusaka Stock Exchange, you sold 400 worth of bonds at $1,000 each at 5% coupon rate (A total of $400,000 raised). The company further issued stocks (shares) totaling 6,000 at $100 each with an expected return of 6% (cost of equity). The company therefore managed to raise the required amount of $1, 000,000 for the desired capital expenditure. Assume Corporate Tax Rate is 35% REQUIRED: Calculate the Weighted Average Cost of Capital (WACC) for your company
Cross Town Cookies is an all-equity firm with a total market value of $695,000. The firm has 46,000 shares of stock outstanding. Management is considering issuing $146,000 of debt at an interest rate of 8 percent and using the proceeds to repurchase shares. Before the debt issue, EBIT will be $60,800. What is the EPS if the debt is issued? Ignore taxes. Multiple Choice $1.46 $.98 $1.20 $1.35
Clayton Industries has the following account balances. Current assets $25,000 Current liabilities $ 13,000 Noncurrent assets 87,000 Noncurrent liabilities 53,000 Stockholders' equity 46,000 The company wishes to raise $49,000 in cash and is considering two financing options: Clayton can sell $49,000 of bonds payable, or it can issue additional common stock for $49,000. To help in the decision process, Clayton's management wants to determine the effects of each alternative on its current ratio and debt-to-assets ratio. Required a-1. Compute the current ratio for Clayton's management. a-2. Compute the debt-to-assets ratio for Clayton's management. b. Assume that after the funds are invested, EBIT amounts to $17,500. Also assume the company pays $3,400 in dividends or $3,400 in interest depending on which source of financing is used. Based on a 30 percent tax rate, determine the amount of the increase in retained earnings that would result under each financing option.
Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $34 million gaming center: a. Issue $34 million of 6% bonds at face amount.b. Issue 1 million shares of common stock for $34 per share. 1. Assuming bonds or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. (Enter your answer in dollars, not millions. (i.e., $5.5 million should be entered as 5,500,000). Round your "Earnings per Share" to 2 decimal places. Round your "Earnings per Share" to 2 decimal places.) Issue Bonds Issue stock   Operating income 10,900,000 10,900,000 Interest expense (bonds only) Income before tax Income tax expense (40%) Net Income Number of shares 3,900,000 4,900,000 Earnings per share
Stardom Manufacturing Company (SMC) is in the construction industry for many years. Recently, the issue of financing has been raised since the company is concerned about additional financing of the company and the sources of funding.   A recent audit of the company’s financial position has indicated the following details: The company has acquired a bond at face value with an interest rate of 10%. The can issue new Preference shares at $7.50 per share and offer dividend of $75 per share. The ordinary shares of Stardom has a market value of $60 per share and the firm is expecting to pay dividend of $4.50 per share one year later with anticipated growth rate of dividend of 6%. The company’s tax rate is 40%. TASK 1: using the above information help the financial controller to calculate: The cost of Debt financing after tax. The cost of Ordinary Share financing. The cost of Preference Shares financing. TASK 2: Using information above, what is the weighted average cost of…
Stardom Manufacturing Company (SMC) is in the construction industry for many years. Recently, the issue of financing has been raised since the company is concerned about additional financing of the company and the sources of funding.   A recent audit of the company’s financial position has indicated the following details: The company has acquired a bond at face value with an interest rate of 10%. The can issue new Preference shares at $7.50 per share and offer dividend of $75 per share. The ordinary shares of Stardom has a market value of $60 per share and the firm is expecting to pay dividend of $4.50 per share one year later with anticipated growth rate of dividend of 6%. The company’s tax rate is 40%. TASK 1: using the above information help the financial controller to calculate: The cost of Debt financing after tax. The cost of Ordinary Share financing. The cost of Preference Shares financing.
Electric Youth, Inc. (EY) is a publicly-traded firm that is the market share leader in perfume for teenagers. You are charged with estimating the cost of capital for the firm. The following market data on EY’s securities are current: Debt 10,000 seven percent coupon bonds outstanding, 15 years to maturity, selling for 92 percent of par; the bonds have a $1,000 par value each and make annual payments. Common stock 250,000 shares outstanding, selling for $55 per share; the beta is 1.4. Market 7 percent expected market risk premium; 5 percent risk-free rate. EY’s tax rate is 22 percent. To do: estimate EY’s cost of capital. Show all work.
Question 1:Suppose Your Company where you work as Finance Director is Financed by both debt (bonds) and equity (shares). In the Board Meeting, it was agreed that you needed to raise extra funds for capital Expenditure (Kn1 Million). Since your company is listed on the Lusaka Stock Exchange, you sold 400 worth of bonds at Kn1,000 each at 5% coupon rate (A total of Kn 400,000 raised). The company further issued stocks (shares) totaling 6,000 at Kn 100 each with an expected return of 6% (cost of equity). The company therefore managed to raise the required amount of Kn 1, 000,000 for the desired capital expenditure.Assume Corporate Tax Rate is 35%. REQUIRED:i) Explain in detail what is meant by the weighted average cost of capital (WACC) ii) Calculate the Weighted Average Cost of Capital (WACC) for your company. iii) What do you think are the major roles of a Corporate Finance Director in the ModernTimes?
Clayton Industries has the following account balances: Current assets $ 24,000 Current liabilities $ 8,000 Noncurrent assets 89,000 Noncurrent liabilities 54,000 Stockholders’ equity 51,000 The company wishes to raise $34,000 in cash and is considering two financing options: Clayton can sell $34,000 of bonds payable, or it can issue additional common stock for $34,000. To help in the decision process, Clayton’s management wants to determine the effects of each alternative on its current ratio and debt-to-assets ratio. Required a-1. Compute the current ratio for Clayton’s management. (Note: Round your answers to 2 decimal places.)

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS