A company purchases debt securities for $200,000 at the beginning of 2022. It classifies $80,000 as trading securities and $120,000 as AFS securities. It sells the securities in 2023.RequiredFor each of the following scenarios, indicate the net effect on income and other comprehensive income in each year 2022 and 2023. In each case, any unrealized decline in valuebelow cost is expected to be recovered and is attributed to market factors.a.Fair value, end of 2022Trading securities AFS securities$76,00086,000$130,000128,000Selling price, 2023Note: Use a negative sign with an answer to indicate the net effect amount decreases Income or OCI.IncomeEnd of 2022 $ (4,000) $OCI10,000b.2023Fair value, end of 2022Selling price, 2023Trading securities AFS securities$90,00084,000$112,000136,000Note: Use a negative sign with an answer to indicate the net effect amount decreases Income or OCI.End of 2022 $2023IncomeOCI0 $000

a. Debt Securities:Debt securities are financial instruments that allow an investor to lend money to…

Answered: A company purchases debt securities for…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter12: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 8P: Stevens Textile Corporations 2019 financial statements are shown here. Stevens grew rapidly in 2019...

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Review of Forecast Assumptions. Dodd Manufacturing Corporation has engaged you to attest to the reasonableness of the assumptions underlying its forecast of revenues, costs, and net income for the next calendar year, 2018. Four of the assumptions follow.1. The company intends to sell certain real estate and other facilities held by Division B at an after-tax profit of $600,000; the proceeds of this sale will be used to retire outstanding debt.2. The company will call and retire all outstanding 9 percent subordinated debentures (callable at 108). The debentures are expected to require the full call premium given present market interest rates of 8 percent on similar debt. A rise in market interest rates to 9 percent would reduce the loss on bond retirement from the projected $200,000 to $190,000.3. Current labor contracts expire on September 1, 2018, and the new contract is expected to result in a wage increase of 5.5 percent. Given the forecasted levels of production and sales,…
At year-end 2018, total assets for Arrington Inc. were$1.8 million and accounts payable were $450,000. Sales, which in 2018 were $3.0 million,are expected to increase by 25% in 2019. Total assets and accounts payable are proportionalto sales, and that relationship will be maintained; that is, they will grow at the same rate assales. Arrington typically uses no current liabilities other than accounts payable. Commonstock amounted to $500,000 in 2018, and retained earnings were $475,000. Arrington plansto sell new common stock in the amount of $130,000. The firm’s profit margin on sales is5%; 35% of earnings will be retained.a. What were Arrington’s total liabilities in 2018?b. How much new long-term debt financing will be needed in 2019?(Hint: AFN - New stock = New long-term debt.)
Assume that today is December 31, 2021. Use the following information that applies to Harrison Corporation to calculate what should be the company’s stock price today. After-tax operating income [EBIT (1 – T)] for 2022 is expected to be $850 million The depreciation expense for 2022 is expected to be $110 million The capital expenditures for 2022 are expected to be $650 million No change is expected in net working capital The free cash flow is expected to grow at a constant rate of 5.5% per year The required return on equity is 10% The WACC is 8% The firm has $150 million of non-operating assets The market value of the company’s debt is $3.25 billion 250 million shares of stock are outstanding Using the corporate valuation model approach, what should be the company’s stock price today?
Some parts of the balance sheet and income statement of PaintsWorld Enterprises is given below. You know that the effective tax rate is 23.0% and the interest rate the company pays on its long-term debt is 11.0%. You also know that the outstanding debt has been constant over the past few years. 1.Find the leverage ratio in 2022: 2. Find the asset turnover for 2022:
Use the following information and the percent-of-sales method to answer this question. Below is the 2021 year-end balance sheet for Isaiah, Inc. Sales for 2021 were $1,600,000 and are expected to be $2,000,000 during 2022. In addition, we know that Isaiah Inc. plans to pay $90,000 in 2022 dividends and expects a projected net income of 4% of sales. (For consistency with the Answer selections provided, round your forecast percentages to two decimals.) How much is the projected current assets for 2022? Isaiah, Inc. Balance Sheet Assets Current assets Net fixed assets Total Liabilities and Owners' Equity Accounts payable Accrued expenses Notes payable Long-term debt Total liabilities Common stock (plus paid-in capital) Retained earnings Common equity Total O 1.260 M December 31, 2021 1.500 M O 1.000 M 1.120 M $890,000 1,000,000 $1,890,000 $160,000 100,000 700,000 300,000 1,260,000 360,000 270,000 630,000 $1,890,000
Williams Company is a manufacturer of auto parts having the following financial statements for 2021-2022.
A money market instrument purchased by the company with a face value of $300,000 will mature on October 15, 2021. In order to meet the financial obligations of the business, management has decided to liquidate the investment upon maturity. On that date quarterly interest computed at a rate of 5% per annum is also expected to be collected. What is the interest?
If Night Owl Inc. calculated the following for their debt-to-equity ratio over two years, did the ratio improve or worsen? 2021 = 1.4 2020 = 0.9 O A Improve O B. Worsen O C. Same OD, Unknown
The 2Ball's Co's sales are forecasted to double from P1,000,000 in 2020 to P2,000,000 in 2021. The figures in the Dec. 31,2020, balance sheet (in thousands) follows: Current Assets, P500; Net Fixed Assets, P500; Accounts Payable and Accruals, P100; Notes Payable, P150; Long-term debt, P400; Common Stock, P100; Retained Earnings, P250. The 2Balls fixed assets were used to only 50% of capacity in 2020, but its current assets were at their proper level in relation to sales. All assets except fixed assets must increase in the same rate as sales and fixed assets would also have to increase at the same rate if the current excess capacity did not exist. 2Balls' after tax profit margin is forecasted to be 5% and its payout ratio to be 60%. What is 2Balls Co.'s additional fund needed (AFN) for the coming year?
1. Given the most recent financial statements for FY2023. Sales for FY2024 are expected to grow by 10 percent. The following assumption must be held in the pro forma financial statements. The tax rate (percentage), the interest expense ($ amount), and the dividend payout ratio (percentage) will remain constant. COGS, SGA, Depreciation, all current asset accounts, Net PPE, intangibles, other assets, and accounts payable increase spontaneously with sales. Calculate the pro forma value for total assets for FY24 if the firm operates at full capacity and no new debt or equity is issued. (Enter percentages as decimals and round to 4 decimals) 2. Given the most recent financial statements for FY2023. Sales for FY2024 are expected to grow by 10 percent. The following assumption must be held in the pro forma financial statements. The tax rate (percentage), the interest expense ($ amount), and the dividend payout ratio (percentage) will remain constant. COGS, SGA, Depreciation, all…
The data table shows financial statement data and stock price data for Mydeco Corp. Suppose Mydeco had purchased additional equipment for $11.7 million at the end of 2016, and this equipment was depreciated by $3.9 million per year in 2017, 2018, and 2019. Given Mydeco‘s tax rate of 35%, what impact would this additional purchase have had on Mydecco’s net income in years 2016-2019? Assume that the equipment is paid for out of cash and that Mydeco earns no interest on its cash balances. In the table, calculate the new net income below. **round to one decimal place**
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