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BARSIC [14]
3 years ago
13

Consider a firm with an EBIT of $559,000. The firm finances its assets with $1,090,000 debt (costing 6.4 percent) and 209,000 sh

ares of stock selling at $15.00 per share. The firm is considering increasing its debt by $900,000, using the proceeds to buy back 84,000 shares of stock. The firm is in the 35 percent tax bracket. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $559,000. Calculate the EPS before AND after the change in capital structure and indicate changes in EPS. (Round your answers to 4 decimal places.) EPS before $ EPS after $ Difference $
Business
1 answer:
Stells [14]3 years ago
3 0

Answer:

EPS before change in capital structure = $2.34

EPS after change in capital structure       $3.45

Difference in EPS caused by the change ($1.11)

Explanation:

a) Data and Calculations:

EBIT = $559,000

6.4% Debts = $1,090,000

Common stock = 209,000 shares at $15 per share

EPS before increasing debt:

EBIT = $559,000

Interest  (69,760) (6.4% of $1,090,000)

Net income = $489,240

EPS = $489,240/209,000 = $2.34 per share

EPS after increasing debt:

New debt = $1,990,000 ($1,090,000 + $900,000)

New equity shares = 125,000 shares (209,000 - 84,000)

EBIT = $559,000

Interest (127,360) (6.4% of $1,990,000)

Net income = $431,640

EPS = $431,640/125,000 = $3.45 per share

EPS before change in capital structure = $2.34

EPS after change in capital structure       $3.45

Difference in EPS caused by the change ($1.11)

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For each of the following situations, identify the type of form to be filed with the SEC for disclosure purposes (2 points): (A)
oee [108]

Answer:

1. Form 8-K : A unique or significant happening.

2. Form 10-K: Annual information required by Regulation S-X.

3. Form 8-K: Changes in control of the registrant.

4. Form 10-Q: Interim financial statements.

5. Not required: Fourth quarter income statement.

6. Form 8-K: Bankruptcy.

7. Form 10-K: Annual information required by Regulation S-K.

8. Form 10-Q: Income statement for the current quarter, year-to-date, and comparative periods in the previous year.

9. Not required: Changes in bookkeeping staff.

10. Form 8-K: Changes in the registrant's independent auditor.

Explanation:

The SEC, an acronym for Securities and Exchange Commission was created under the Securities Exchange Act of 1934. The Act empowered the SEC to require registration of securities, security exchanges, and reporting by publicly owned firms.

Some of the forms to be filled as required by the United States of America, Securities and Exchange Commission (SEC) includes;

1. Form 10-K.

2. Form 10-Q.

3. Form 8-K.

5 0
3 years ago
Conversion cost per equivalent unit is the combined costs of direct materials and factory overhead.
Maksim231197 [3]

Answer:

False

Explanation:

Cost

This is simply defined as a payment of cash or the commitment to pay cash in the future for revenues purpose. E.g. The cash used to purchase a tractor, is the cost of the tractor.

Conversion costs

This is simply regarded as direct materials, direct labor, and factory overhead costs that can be selected together or grouped together for analysis and reporting. It consist of direct labor in factory overhead costs.

The Equation for Conversion cost is simply = Direct Labor Cost + Manufacturing Overhead Cost.

While the Equivalent Units of Production = Number of Units Transferred to the next department + Equivalent Units in Ending Works in Process Inventory.

The equation for Equivalent units of production for conversion cost is given below: Units completed and transferred out + Equivalent units in ending work in process for conversion cost.

The equation for Cost per equivalent unit for conversion cost is simply =

(conversion cost of beginning work in process + conversion cost added during the period)/ Equivalent units of production for conversion cost.

8 0
2 years ago
Assume the Fed creates excess reserves in the banking system by buying government bonds, but banks do not make more loans becaus
seropon [69]

Answer: Cyclical asymmetry

Explanation:

In economics, Cyclical asymmetry is defined as

A value that represents a large imbalance in economic factors due to genuine cyclical reactions by a country or market.

It includes employment rates,  interest rates, debt retention, bond strengths, or stock market imbalances.

If we assume the Fed creates excess reserves in the banking system by buying government bonds, but banks do not make more loans because economic conditions are bad.

Since this happens due to the cyclical reaction of the government.

This means that,

This situation is a problem of <u>cyclical asymmetry</u>.

8 0
2 years ago
Although Martin is not in top management, he is charismatic and well liked by others in his organization. Other employees often
Bingel [31]

Answer:

<em>Informal leadership</em>

Explanation:

Informal leadership is an individual's <em>ability to manipulate other people's behavior through means other  than structured authority granted by the company across its rules and regulations. </em>

Informal leadership is simply any kind of leadership that is not formally based.

7 0
3 years ago
Gentry Inc. purchased 90% of Gaspard Farms on January 5, 2019. During 2019, Gentry sold Gaspard Farms for $650,000 goods which h
Wewaii [24]

Answer:

$5572500

Explanation:

consolidated cost of goods sold for 2020 would be:

consolidated cost of goods sold = ( total of goods sold by bought company ) - ( intra-entity transfer ) + ( ending unrealized gross profit ) - ( beginning unrealized gross profit )

= ( 5400000 + 1200000 ) - ( 1000000 )+(1000000*20%)*20% - {(650000*15%)*(450000/650000)}

= 6600000 - 1040000 - ( 97500 * 45/65 )

= $5572500

3 0
3 years ago
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