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3 years ago

EBook

Business

1 answer:

attashe74 [19]3 years ago

6 0

Answer:

McDade Company

Comparative Income Statement

For the Years Ended December 31, 2012 and 2011

2012 2011 Change %

Sales $16,800,000 $15,000,000 $1,800,000 12%

COGS ($11,500,000) ($10,000,000) $1,500,000 15%

Gross profit $5,300,000 $5,000,000 $300,000 6%

Selling expenses ($1,770,000) ($1,500,000) $270,000 18%

Adm. expenses ($1,220,000) ($1,000,000) $220,000 22%

Operating exp. ($2,990,000) ($2,500,000) $490,000 19.6%

Operating income $2,310,000 $2,500,000 ($190,000) -7.6%

Other revenue $256,950 $225,000 $31,950 14.2%

EBT $2,566,950 $2,725,000 ($158,050) -5.8%

Income taxes ($1,413,000) ($1,500,000) ($87,000) -5.8%

Net income $1,153,950 $1,225,000 ($71,050) -5.8%

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Answer: Relevant cost of new preferred stock = 10.53%

Explanation:

Given:

Dividend = $4.00 per share

Selling for = $40 per share.

Flotation costs = 5% of the selling price.

Marginal tax rate is 30%.

We can compute the cost of new preferred stocks using the following formula:

$Relevant\ cost\ of\ new\ preferred\ stock =\frac{ Dividend}{Current\ price\ after\ flotation\ Cost}$

$Relevant\ cost\ of\ new\ preferred\ stock =\frac{4}{40-(0.05\times40)}$

∴ Relevant cost of new preferred stock = 10.53%

Therefore, the correct option is (d)

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eimsori [14]

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3 years ago

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3 years ago

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castortr0y [4]

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Cheers!

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2 years ago