The following information relates to Continental Bhd.: RM'000 Ordinary shares 9% bonds, redeemable in 10 years 7% bonds, redeemable in 6 years Long-term bank loan 20,000 5,000 4,000 1.000 30.000 Question 1 (Continued) Notes: 1. The current ex div market price of the ordinary shares is RM4.50 and Continental Bhd. has just paid a dividend of 45 sen per share. Ordinary share prices and dividends on ordinary shares are both expected to grow by 3% per year for the foresecable future. The current ex interest market price of the 9% bonds is RM105.00 per RM100 bond. The current ex interest market price of the 7% bonds is RM115.00 per RM100 bond and these bonds are convertible into 25 ordinary shares per RM100 bond in 6 years' time. The after-tax interest rate on the long-term bank loan is 5.5% per year. Continental Bhd. pays profit tax at a rate of 30% per year. 2. 3. 4. 5. 6. Required: (i) Calculate the weighted average after-tax cost of capital of Continental Bhd, clearly explaining any assumptions that you have made regarding the convertible bonds. (ii) Critically comment on the impact of using more debts on a company's value.

The following information relates to Continental Bhd.: RM'000 Ordinary shares 9% bonds, redeemable in 10 years 7% bonds, redeemable in 6 years Long-term bank loan 20,000 5,000 4,000 1.000 30.000 Question 1 (Continued) Notes: 1. The current ex div market price of the ordinary shares is RM4.50 and Continental Bhd. has just paid a dividend of 45 sen per share. Ordinary share prices and dividends on ordinary shares are both expected to grow by 3% per year for the foresecable future. The current ex interest market price of the 9% bonds is RM105.00 per RM100 bond. The current ex interest market price of the 7% bonds is RM115.00 per RM100 bond and these bonds are convertible into 25 ordinary shares per RM100 bond in 6 years' time. The after-tax interest rate on the long-term bank loan is 5.5% per year. Continental Bhd. pays profit tax at a rate of 30% per year. 2. 3. 4. 5. 6. Required: (i) Calculate the weighted average after-tax cost of capital of Continental Bhd, clearly explaining any assumptions that you have made regarding the convertible bonds. (ii) Critically comment on the impact of using more debts on a company's value.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Q2. The following transactions involving marketable securities investments of Kappa Co., occurred during 2022; a) On Feb. 14, purchased Alfa's 90-day bonds, paying cash of $170,000 (par value $170,000), issue date Feb. 14, that pay 9% interest. b) On March 21, purchased 850 shares of Beta Co. at $21 per share, in cash. c) On May 14, collected the principal and 90-days' interest on the bonds purchased in transaction a. d) On Aug. 1, paid $70,000 cash to Gama Co.'s 12% bonds (par value $70,000), issue date July 31, 2022, and retires January 31, 2023. e) On Sept. 1, Beta Co. declared a $1.80 per share cash dividend on shares payable on Oct.31. f) On Oct. 7, sold 425 shares of Beta Co. and collected totally $10,625. g) On Oct. 31, collected Gama Co.'s 90-days' interest and Beta Co.'s dividends. Required: Prepare the journal entries and post to necessary ledger accounts.
The equity of Duffy Ltd at 1.12.2022 was as follows: Share capital Share premium Revaluation reserve Retained profits 100,000 shares of 10p each £ 10,000 30,000 40,000 90.000 170.000 On 10.12.2022, the company made a bonus issue. 10 shares were issued for in such a way as to maximise the retained profits. The double entry reflecting this share issue is which of the following:
Q2. The following information was extracted from the Statement of Financial Position of Carman Berhad as at 31 December 2018. 7% cumulative preference shares 2,000,000 issued and outstanding of RM100 each ordinary shares 22,000,000 issued of RMI each treasury shares 2,000,000 5% convertible bond are RM10,000,000 worth of bond convertible into 2,000,000 ordinary shares stock options 1,000,000, each to purchase one ordinary share at RM25 per share warrants 2,000,000, each to purchase one ordinary share at RM15 per share Average market share price RM20 Average warrant price RM10 Net profit RM36,000,000 Tax rate is 24% Required: (a) Compute the basic earnings per share. (b) Taking into account dilutive effects above, compute the diluted earnings per share.
The entity received P4,500,000 cash from the issuance of its 9%, 10-year P5,000,000 par value preference shares. How much is the cost of the preference shares using the following methods? 1. Yield-to-maturity formula 2. Interpolation method using multiplies of 1%
25) Harrell's Barrels issued $100 million of 6% convertible bonds at 101. Each $1,000 bond is convertible into 45 shares of Harrell's no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 98. Harrell applies International Financial Reporting Standards. Recording the issuance of the bonds would cause an increase in Harrell's: A) shareholders' equity of $1,000,000. B) shareholders' equity of $3,000,000. C) assets of $98,000,000. D) liabilities of $101,000,000.
The table below shows a partial view of Webster Corporation's balancesheet. Webster CorporationBalance Sheet (partial)At December 31, 2021 Long-term debt Notes payable 10% $2,000,00010% convertible bonds payable 2,500,00012% convertible bonds payable 3,000,000Total long-term debt $7,500,000 Stockholders' equity 6% cumulative, convertiblepreferred stock, $100 par, 50,000shares outstanding. 5,000,000 Common stock, $1 par, 600,000shares outstanding. 600,000Additional paid-in capital 2,500,000 Retained earnings 8,500,000Total stockholders' equity $16,600,000 Notes and Assumptions December 31, 20211. Options were granted in December 2020 to purchase 25,000 shares of common stock at $25 per share. The average market price of common stock during 2021 was $35 per share. All options are still outstanding atthe end of 2021 2. Both the 10 percent and 12 percent convertible bonds were issued in2020 at face value. Each convertible bond is convertible into 50 shares of common stock.…
KKK Company reported the following at year-end: 10% Bonds payable 1,000,000 Ordinary share capital, P100 par, 50,000 shares 5,000,000 Net income 1,730,000 The bonds are convertible into ordinary shares in the ratio of 10 ordinary shares for each P1,000 bond. The income tax rate is 30%. Questions: 1. Compute for the basic earnings per share. 2. Compute for the diluted earnings per share.
Compute for the following with solution: 1. Number of presefrence share subscribed 2. Number of Ordinary share subscribed
PROBLEM 2 The bank accepted an equity interest in Seal Company in the form of 200,000ordinary shares quoted at P12 per share. The par value is P10 per share. The fair value of the note payable on the date of restructuring is P2,200,000.Requirement:a. What amount should be recognized as gain from debt extinguishment as a resultof the equity swap? b. What amount should be recognized as share premium from issuance of theshares?
Star Ltd. presents the following information from the Statement of Financial Position: Equity £ Capital (120, 000 shares of £1 120,000 each) Retained Profits Share premium Total Equity 22,000 50,000 192,000 Star Ltd. issues 20, 000 ordinary shares for a price of £2. Considering the previous information and the economic transaction of issuing ordinary shares, which of the following statements is correct? O a. The company increases cash in £20,000 and share premium decreases in the same amount. O b. The company decreases cash in £40,000 and total equity remains unchanged. O c. The company increases cash in £40,000 and equity increases in the same amount. O d. None of the answers is true.
am.100.
On I January x1, Annie Bhd issued 25 million, 4% redeemable preference shares at RMl each redeemable at a premium of 18%, on 31 December x4. The effective interest rate is 8% and the interest rate is 31 December. The market price of the shares in years x1 to x4 is shown below: RM 31 December xl 31 December x2 1.06 1.10 31 December x3 112 31 December x4 118 Required: Discuss the accounting treatment where the preference shares are measured at amortised cost

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