You are the financial planner for Johnson Controls. Assume last year's profits were $880,000. The board of directors decided to forgodividends to stockholders and retire high-interest outstanding bonds that were issued 6 years ago at a face value of $1,490,000. Youhave been asked to invest the profits in a bank. The board must know how much money you will need from the profits earned to retirethe bonds in 8 years. Bank A pays 6% compounded quarterly, and Bank B pays 7% compounded annually. (Use Table 1 and Table 2provided.)Note: Do not round intermediate calculations. Round your answers to the nearest dollar amount.a-1. Which bank would you recommend?Bank ABank Ba-2. How much of the company's profit should be placed in the bank?Profitb. If you recommended that the remaining money not be distributed to stockholders but be placed in Bank B, how much would theremaining money be worth in 8 years?Future Value

The objective of the question is to determine which bank to choose for investment and how much of…

Answered: You are the financial planner for…

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

John Tye has just been hired as the new corporate finance analyst at I-Ell Enterprises and has received his first assignment. John is to take the $25 million in cash received from a recent divestiture and use part of these proceeds to retire an outstanding $10 million bond issue and the remainder to repurchase common stock. However, the bond issue cannot be retired for another two years. If John can place the funds necessary to retire this $10 million debt into an account earning 6 percent compounded monthly,how much of the $25 million remains to repurchase stock?
2) On July 1, 2020 you borrowed $8,000 from the bank and purchased 400 shares in Gone Ltd. for $20 per share. You had read online that Gone Ltd. would be paying dividends of $3.00 a share during the last half of 2020. The dividend payment didn't happen as expected and you received a total of $100 in eligible dividends during 2020. On December 31 you paid the bank loan interest of $240. On her 2020 tax return, Esther will report: A) Net Property Income of $100. B) Net Property Income of $138. C) Net Property Income of $0. D) Net Property Loss of $102.
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
Mrs. Kate Sawyer establishes a company with $220,000 of cash. $190,000 of this cash amount is paid to a supplier for an equipment purchase. Then the company has a great opportunity to enter into a project, but it has limited cash to invest in that project. Therefore, it decides to issue bonds and shares to the investors in order to raise funds. On the bond side, the company issues a $30,000 of 3-year zero-coupon bonds. The market yield is 10%. On the share side, however, the company issues $50,000 of common stock (par value: $1 each) at a price of $2.4 .At the time of these transactions are completed, what would be the total assets of the company? A) $340,000 B) $355,080 C) $362,540 D) $370,000 E) Other (Please Specify)
L'Oreal (bank account at Alpha Bank) issues $60,000 face value bonds for the price of $56,000; the bonds have a four year maturity and pay $5,000 coupons once a year. A third of the bonds are bought by Alpha Bank (transaction 1) while the other two thirds are bought by SuperManage, a managed fund banking at Beta bank (transaction 2). Conclude how the stock of bank deposits and the stock of central bank deposits in the financial system have changed as a result of these two transactions. Explain your answers.
Harper’s Dog Pens, Inc. with the help of its investment bank, recently issued $199.1 million of new debt. The offer price on the debt was $1,000 per bond and the underwriter’s spread was 6 percent of the gross proceeds. Calculate the amount of capital funding Harper’s Dog Pens raised through this bond issue. (Enter your answer in dollars not in millions.
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
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 Kn400,000 raised). The company further issued stocks (shares) totaling 6,000 at Kn100 each with an expected return of 6% (cost of equity). The company therefore managed to raise the required amount of Kn1, 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-
The founder of Frenza asks us to assist her in accounting and analysis of the corporation's bonds, which have an annual contract rate of 8%. She wants to know the business and accounting implications of further debt issuances as she looks for ways to finance the growth of Frenza. The following Tableau Dashboard is provided to help us address her questions and provide recommendations for her business decisions. $100,000 $80,000 $60,000 $40,000 $20,000 $0 Frenza Bond Amortization Carrying Value Unamortized Discount January 1, Year June 30, Year 1 December 31, June 30, Year 2 December 31, June 30, Year 3 December 31, 1 Year 1 Year 2 Year 3 Cash & Inventory for Competing Companies Market Rate for Company Bonds
At this point, you may be confused why calling part of your in- vestment debt or equity makes a difference. Let’s walk through an example and compute your post-tax returns. Suppose $2 million of your investment is structured as debt and the remaining $8 million is equity. What happens each year after the company is set up? Well, using the $4 million EBIT, the company will first pay $2 million 50% = $1 million interest to you (as a debt investor). Then, on the remaining $4 $1 = $3 million of EBIT, the company pays corporate taxes of $3 20% = $0.6 million and is left with $2.4 million, which will be paid out to you (the equity holder) as dividend. Income Statement EBIT 4 -Interest expense 1 -Corporate taxes .6 = Net income of 2.4 million Therefore, the total returns to you (as an investor) is $1 million in interest and $2.4 million in dividends, which is a total of $3.4 million.4 Uncle Sam collected $0.6 million. The company will go bankrupt if its EBIT is strictly less than interest…
II. Read each statement carefully. Identify the following whether it is a "BOND" OR "STOCK". Check ( /) the appropriate box. BOND STOCK If a company has 10, 000 shares of stock outstanding and one person owns 1, 000 shares, that person would own and have claim to 10% of the company's assets and earnings. If current interest rates are 5% lower than your rate on a mortgage on which you have 4 years left to pay, it's going to matter much less than it would for someone who has 20 years of mortgage payments left. You might buy a 10 year, 10,000 bond paying 5% interest. The issuer,in exchange, will promise to pay you interest on that 7,500 every six months and then return your 10,000 after 10 years. A blue chip stocks are stocks issued by high quality, large companies and generally have steady dividend. 1. 2. 3. 4. 5. It offer an ownership stake in the company and considered riskier and more volatile.
1) Listen Mountain Equipment Co-op has just issued $700,000 in 10-year bonds. They are required to establish a sinking fund in order to save enough money to pay the bond redemption when it comes due. How much must they deposit at the end of every six months into an account earning j2=4% in order to save the $700,000? Your Answer: 11 Answer

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