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Alex_Xolod [135]
2 years ago
13

Burnwood Tech plans to issue some $80 par preferred stock with a 7% dividend. A similar stock is selling on the market for $95.

Burnwood must pay flotation costs of 5% of the issue price. What is the cost of the preferred stock?
Business
1 answer:
anyanavicka [17]2 years ago
8 0

Answer:

6.20%

Explanation:

Calculation for the cost of the preferred stock

First step is to calculate the Annual Dividend Payment on Preferred Stock

Annual Dividend Payment on Preferred Stock = [7% * $80]

Annual Dividend Payment on Preferred Stock = $5.60

Now let calculate the Cost of Preferred Stock using this formula

Cost of Preferred Stock = [Preferred Stock dividend / Market Price of

Preferred Stock (1-Flotation cost)]

Let plug in the formula

Cost of Preferred Stock = [($80 * 7%) / $95(1-0.05)]

Cost of Preferred Stock = [$5.60 / $95 (0.95)]

Cost of Preferred Stock = [$5.60 / $90.25]

Cost of Preferred Stock = 0.0620*100

Cost of Preferred Stock = 6.20%

Therefore the cost of the preferred stock is 6.20%

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Analyse TWO benefits of being employed in an education sector (2×2=4)
chubhunter [2.5K]

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3 years ago
Carla Corporation owns machinery that cost $24,800 when purchased on July 1, 2017. Depreciation has been recorded at a rate of $
liberstina [14]

Answer:

a. Journal entries to update depreciation for 2021:

Debit Depreciation expense $1,984

Credit Accumulated depreciation account $1,984

b. Journal entries to record the sale:

Debit Cash $13,020

Debit Accumulated depreciation account $12,400

Credit Gain on asset disposal  $620

Credit Machinery asset $24,800

Explanation:

a. Depreciation of the machinery has been recorded at a rate of $2,976 per year.

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Depreciation expense for 2021 = $248 x 8 = $1,984

Journal entries to update depreciation for 2021:

Debit Depreciation expense $1,984

Credit Accumulated depreciation account $1,984

b.

Accumulated depreciation account at December 31, 2020 has credit balance of $12,400 ($10,416 + $1,984 = $12,400)

The carrying amount of the machinery = Cost of the machinery -  Accumulated depreciation = $24,800 - $12,400 = $12,400

Sales price - Carrying amount of the machinery = $13,020 - $12,400 = $620>0

The company recognizes gain on the sale. Journal entries to record the sale:

Debit Cash $13,020

Debit Accumulated depreciation account $12,400

Credit Gain on asset disposal  $620

Credit Machinery asset $24,800

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Answer:

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