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AleksandrR [38]
2 years ago
9

Spyder Mann has expected sales of $250 million a year. Variable costs are expected to be 75 percent of sales and fixed operating

costs are $20000000 a year. Total capital is presently $400000000 and must be expanded to $600000000 to generate the anticipated sales level. The company presently has no debt outstanding, and 2130000 shares of stock. Additional common stock could be sold for $150 a share. The interest rate on new debt would be 6.5 percent and the tax rate is 21 percent. Compute the return on equity and earnings per share assuming the expansion is financed: Sales of $250 million, Var. cost of 75% of sales, Fixed cost of $20000000 per year, new capital needed $200000000 ($600000000 - $400000000), number of shares 2130000 shares, stock price of $150, interest expense of 6.5%, tax of 21%, assume no preferred dividends. a. exclusively with debt, b. exclusively with equity and c. with one-half debt and one-half equity. Calculate return on equity (ROE) and earnings per share (EPS) if expansion is financed by debt.
Business
1 answer:
KiRa [710]2 years ago
7 0

Answer:

The answer is "5.83%, $10.94"

Explanation:

Please find the complete question and its solution in the attached file.

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has a target debt−equity ratio of 1.35. Its WACC is 8.3 percent, and the tax rate is 35 percent. If the company’s cost of equity
dsp73

Answer:

5.74%

Explanation:

WACC = weight of equity x cost of equity +  weight of debt x cost of debt x (1 - tax rate)

weight of debt =  D / (D + E) = 1.35/ (1.35 + 1) = 0.574468 = 57.4468%

weight of equity = 100% - 57.4468% = 42.5532%

let x represent pretax cost of debt

8.1% = 0.425532 x 14% +( 0.574468x) x 0.65

8.1% = 0.373404x + 5.957448%

solve for x

x = 5.74%

5 0
3 years ago
ABC, Inc. discounts a 5%, 9-month, $1,000 note with a financial institution after holding the note for 3 months. The note was re
Gnoma [55]

Answer:

interest receivable   12.50    debit

     interest revenue     12.50 credit

--adjusting entry for the interest accrued--

interest expense      11.31 debit

cash                     1,001.19 debit

     note receivable             1,000.00 credit

     interest receivable             12.50 credit

--to record early discount of the note--

Explanation:

We are going to write-off the note and check for the interest expense:

book value of the note:

principal  + interest accrued

principal x rate x time = interest

1,000 x 0.05 x 3 months/12 month a year  = 12.50

we had interest receivable for 12.50

1,000 + 12.5 = 1,012.5 we receive 1,001.19

interest expense: 11.31

We are following this process to avoid compensate balance as is the company earned interest during those three months and then it pay interest to get cash earlier.

8 0
3 years ago
If you are trying to establish a credit history, would you use credit to make a purchase even if you could pay cash? Why?
mr Goodwill [35]

Answer:

By using credit, you're building up your overall score. Cash purchases go unnoticed by companies and your bank.

Explanation:

8 0
3 years ago
A company started the year with the following: Assets $104,000; Liabilities $34,000; Common Stock $64,000; Retained Earnings $6,
Leona [35]

Answer:

b. $2,200.

Explanation:

Net income = Revenue - Expenses

Net income = $5,400 - $3,200

Net income = $2,200

Therefore, the amount of net income for the year is $2,200

8 0
2 years ago
In 2019, Dan transferred 5-year property to Fleck Corp. in a tax-deferred Section 351 transaction. Fleck took Dan's adjusted bas
irina1246 [14]

Answer:

The property will be depreciated using the remaining 3 years of its life after the tax-free incorporation transfer year.  This is because Dan had already depreciated the property for 2 years before the transfer.

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Sec. 351 allows a tax-free incorporation transfer if certain requirements are met, including that the property must be transferred to Fleck Corporation by Dan in exchange for stock in Fleck Corporation, and, immediately after the exchange, the Fleck Corporation is in control.

7 0
3 years ago
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