Answer:
RE break point = $24500
Explanation:
21,000 net income
30% OF Earnings as dividends
21,000 x 30% = 6,300 dividends
Retained Earnings (assuming no previous beginning value)
21,000 - 6,300 = 14,700
RE break point = 14,700/0.6 = 24500
What does the $24,500 mean?
This mean that the company can raise financing for this ammount without changing their capital structure (60% equity 40% debt)
If the company wants to finance for more, it will need to raise new shares or chance their capital structure, and therefore the WACC will change
Answer:
1. $550,000
Explanation:
1. It is given in the question that the stated interest rate and the market interest rate both are having the same rate, i.e, 12%.
Hence, the bonds are issued at the face value that is $550,000.
2. The Journal entries are as follows:
(i) On January 1,
Cash A/c Dr. $550,000
To bonds payable $550,000
(To record the bond issuance)
(ii) On December 31,
Interest Expense A/c Dr. $66,000
To cash A/c $66,000
(To record the first interest payment on December 31 assuming no interest has been accrued earlier in the year)
Workings:
Interest expense = $550,000 × 12%
= $66,000
False.... The amount of money taken out of a check for taxes depends on how much you're getting paid.
Answer:
1) False
when the inflation is lower than expected, the real interest rate will be higher, since
real interest rate = Nominal interest rate - inflation.
2) Gains
In case of unexpected lower inflation the lender gains and the borrower loses.This is because real value of the loan increases due to lower inflation.
3) Loses
In case of unexpected lower inflation the lender gains and the borrower loses.This is because real value of the loan increases due to lower inflation.
