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

Your friend told you that she invested $1,000 in a portfolio of a large company stocks 5 years ago and also reinvested the dividends. Her investment grew to $3,456 as at today. Had she invested that same amount in a Government of Grenada bond she would have recieved $2,500 even id she reinvested the 10percent coupons paid on the bonds. Given this information, critically discuss why anyone would want to invest in bonds rather than bonds? Further explai why the price of many stocks still go down, even when the oversll market goes up. How can you avoid the value of your stock from going down?
5. A new company developed a program in which the employees will be allowed to purchase share of stocks of the company at the end of its 5th year of operation, when the company thought to have gained stability already, at par value of P 100 per share. Believing in a good potential of the company, an employee decided to save in a bank the amount f P 8,000 for him at 9% interest compounded yearly. How much share of stocks will he be able to purchase at the end of the 5th year of his yearly deposits? Ans. 478 shares
Assume you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant chain. The company’s EBIT was $120 million last year and is not expected to grow. PizzaPalace is in the 25% state-plus-federal tax bracket, the risk-free rate is 6 percent, and the market risk premium is 6 percent. The firm is currently financed with all equity, and it has 10 million shares outstanding. When you took your corporate finance course, your instructor stated that most firms’ owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he encouraged you to pursue the idea. If the company were to recapitalize, then debt would be issued, and the funds received would be used to repurchase stock. As a first step, assume that you obtained from the firm’s investment banker the following estimated costs of debt for the firm at different capital structures: Percent Financed with Debt, Wd Rd 0% 20% 8.0% 30% 8.5% 40% 10.0%…
Need both answer
You are very optimistic about the personal computer industry, so you buy 200 shares of Microtech Inc. at $45 per share. You are very pessimistic about the machine tool industry, so you sell short 300 shares of King Tools Corporation at $55. Each transaction requires a 40 percent margin balance. a. What is the initial equity in your account? b. Assume the price of each stock is as follows for the next three months (month-end). Compute the equity balance in your account for each month: Month Microtech Inc. King Tools Corp. October $51 $48 November 39 62 December 37 40
2. National Business Machine Co. (NBM) has $4.9 million of extra cash after taxes have been paid. NBM has two choices to make use of this cash. One alternative is to invest the cash in financial assets. The resulting investment income will be paid out as a special dividend at the end of three years. In this case, the firm can invest in either Treasury bills yielding 3% or 5% preferred stock. IRS regulations allow the company to exclude from taxable income 70% of the dividends received from investing in another company's stock. Another alternative is to pay out the cash now as dividends. This would allow the shareholders to invest on their own in Treasury bills with the same yield or in preferred stock. The corporate tax rate is 21%. Assume the investor has a 31% personal income tax rate, which is applied to interest income and preferred stock dividends. The personal dividend tax rate is 15% on common stock dividends. Should the cash be paid today or in three years? Which of…
You invested $1,000 by buying shares in a mutual fund on January 1. The income tax rate is 20%. The value of your mutual fund shares increased to $1,500 by December 31. What will you report in your December 31 balance sheet with respect to these shares? Asset: Mutual fund shares, $1,000; Liability: Deferred income taxes, $100 Asset: Mutual fund shares, $1,500; Asset: Deferred income taxes, $100 Asset: Mutual fund shares, $1,500; Liability: Deferred income taxes, $100 Asset: Mutual fund shares, $1,000; Asset: Deferred income taxes, $100 Asset: Mutual fund shares, $1,500; Liability: Deferred income taxes, $600
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.
"Five hundred shares of Copper common stock. The company plans to sell the stock in 60days to help pay for a note due at that time at the bank". The stocks, in this case, are considered as cash equivalent or short term investment? Thank you in Advance!

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