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A. Explain why a firm might consider a stock split for its shares.

A. Explain why a firm might consider a stock split for its shares.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Answer question 4. A, B, C and D.

QUESTION FOUR A. Explain why a firm might consider a stock split for its shares. B. Z Corporation has 1,000 shares of K20 par value common stock outstanding. The company is considering a 4 for 1 stock split. How will this affect the shareholders' equity accounts? C. XY Ltd has bonds outstanding with 7 years left before maturity. The bonds are currently selling for K800 per K1,000 face value bond. The interest is paid annually at a rate of 12 percent. The firm's tax rate is 40 percent. Calculate the after-tax cost of debt. D. The Yufi Mining Corporative is set to open a gold mine in Mansa. According to the evaluations made this far, the mine will cost K900,000 to open and will have an economic life of 11 years. It will generate a cash inflow of K175,000 at the end of the first year, and the cash inflows are projected to grow at 8% per year for the next 10 years. It is projected that the mine will be abandoned in the 11th year. Abandonment costs are expected to be K125,000 at the end of year 11. The required return for the investors is 10%. Using the internal rate of return (IRR), Should the mine be opened?
Transcribed Image Text:QUESTION FOUR A. Explain why a firm might consider a stock split for its shares. B. Z Corporation has 1,000 shares of K20 par value common stock outstanding. The company is considering a 4 for 1 stock split. How will this affect the shareholders' equity accounts? C. XY Ltd has bonds outstanding with 7 years left before maturity. The bonds are currently selling for K800 per K1,000 face value bond. The interest is paid annually at a rate of 12 percent. The firm's tax rate is 40 percent. Calculate the after-tax cost of debt. D. The Yufi Mining Corporative is set to open a gold mine in Mansa. According to the evaluations made this far, the mine will cost K900,000 to open and will have an economic life of 11 years. It will generate a cash inflow of K175,000 at the end of the first year, and the cash inflows are projected to grow at 8% per year for the next 10 years. It is projected that the mine will be abandoned in the 11th year. Abandonment costs are expected to be K125,000 at the end of year 11. The required return for the investors is 10%. Using the internal rate of return (IRR), Should the mine be opened?
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