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topjm [15]
2 years ago
9

Suppose a company is financed with $20 million of equity and $60 million of debt. That is, the company obtained $20 million from

shareholders and $40 million from debtholders to finance its operations. Its capital structure is, therefore, 25% (=$20million/ ($20 million+$60 million) ) equity and 75% (=$60million/ ($20 million+$60 million) ) debt. Please provide the solutions to the following questions (a, b) in the box below.
If company issues $30 million new equity in order to retire some of its debt, what would be its new capital structure?
How do you think market would react on the announcement about the new equity issue? Why? Explain.
Business
1 answer:
alexgriva [62]2 years ago
6 0

Answer:

Existing Equity = 20 million

Existing debt = 60 million

Total capital = 20 million + 60 million = 80 million

a. Given company issued 30 million of equity to retire debt

Equity after raise = $20 million + $30 million = $50 million

Debt = $60 million - $30 million = $30 million

Total capital size remain at $80 million

Capital structure, Equity = $50 million/$80 million = 0.625 = 62.50%

Debt = (1-0.625) = 0.375 = 37.50%

b. The market would welcome the new issue as the risk of  the firm would be reduced.

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A company excludes from the current assets section, the amount of cash restricted for purposes other than payment of current obl
zhenek [66]

Answer:

1. True.

2. True.

3. True.

4. True.

Explanation:

1. True: A company excludes from the current assets section, the amount of cash restricted for purposes other than payment of current obligations or for use in current operations.

2. True: Land held for speculation is reported in the long-term investment section of the balance sheet because they are fixed assets.

3. True: Financial flexibility measures the ability of an enterprise to take effective actions to alter the amounts and timing of cash flows.

4. True: Companies determine cash provided by operating activities by converting net income on an accrual basis to a cash basis.

7 0
3 years ago
3. Which of the following is not a characteristic of a good citizen?
Elan Coil [88]

Answer:

Owning property

Explanation:

Its the only one that affects solely 1 person rather than benefit the community as a whole

6 0
3 years ago
You are considering investing $1,000 in a T-bill that pays 0.05 and a risky portfolio, P, constructed with 2 risky securities, X
Leokris [45]

Answer:

% in T bills = 18.92%, % in P = 81.08%

Explanation:

Portfolio return = Weighted average return

Return of portfolio P = 0.14*0.6 + 0.10*0.4

Return of portfolio P = 0.124

Let % money in T bills be x

0.11 = 0.05*x + 0.124*(1-x)

0.11 = 0.05x + 0.124 - 0.124x

0.014 = 0.074x

x = 18.92%

Hence, % in T bills = 18.92%, % in P = 81.08%

3 0
3 years ago
Match the taxes to the entities on which they are assessed
nlexa [21]

Answer:

question isn't clear. any answers???

6 0
2 years ago
During 2021, Farewell Inc. had 500,000 shares of common stock and 50,000 shares of 6% cumulative preferred stock outstanding. Th
grigory [225]

Answer:

a) c. $4.34

b) b. $4.10

Explanation:

a) Find Farewell's diluted earnings per share for 2021.

Use the formula below:

Diluted EPS = (Net income after tax - preferred dividend) / diluted common stock

= \frac{2,500,000 - (50,000*100*0.06)}{500,000+(200,000 - ((29*10,000)/30))}

= \frac{2,500,000 - 300,000}{500,000 + (200,000 - 193,333)}

= \frac{220,000}{506,667}

= 4.34

Diluted EPS = $4.34 per share

b) stock options = 5,000

Value in current shares = 500,000/12 = $4,167

Diluted shares = 5000 - 4167 = 833

Use the formula below to find the diluted earnings per share:

Diluted EPS = Net income/share outstanding

= \frac{269,915}{50,000 +(20,000-5,000) + 833)}

= \frac{269,915}{50,000 + 15,000 + 833}

= \frac{269,915}{65,833}

= 4.10

Diluted EPS = $4.10 per share

8 0
3 years ago
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