View PoliciesCurrent Attempt in ProgressPharoah Airlines is considering two alternatives for the financing of a purchase of a fleet of airplanes. These two alternatives are:1.2.Issue 91,500 shares of common stock at $30 per share. (Cash dividends have not been paid nor is the payment of anycontemplated.)Issue 7%, 10-year bonds at face value for $2,745,000.It is estimated that the company will earn $735,000 before interest and taxes as a result of this purchase. The company has anestimated tax rate of 40% and has 112,000 shares of common stock outstanding prior to the new financing.Determine the effect on net income and earnings per share for these two methods of financing. (Round earnings per share to 2 decimalplaces, e.g. 2.25.)Net incomeen10Earnings per share $Plan One Issue Stock$LAPlan Two Issue Bonds

The process by which a business issues and sells additional shares of its stock to investors is…

Answered: Current Attempt in Progress Pharoah…

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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ASSISTANCE WITH QUESTIONS 4, 5,6 AND 7 PLEASE A 5-year project will require an investment of $100 million. This comprises of plant andmachinery worth $80 million and a net working capital of $20 million. The entire outlay willbe incurred at the project’s commencement.Financing for the project has been arranged as follows:80,000 new common shares are issued, the market price of which is $500 per share. Theseshares will offer a dividend of $4 per share in year 1, which is expected to grow at a rate of 9%per year for an indefinite tenure.Remaining funds are borrowed by issuing 5-year, 9% semi-annual bonds, each bond having aface value of $1,000. These bonds now have a market value of $1,150 each.At the end of 5 years, fixed assets will fetch a net salvage value of $30 million, whereas the networking capital will be liquidated at its book value.The project is expected to increase revenues of the firm by $120 million per year. Expenses,other than depreciation, interest and tax, will amount…
Choose the correct answer: (Also provide reasons for incorrect options) Tropical Fruit Drinks issued $10,000,000 in bonds to expand its production facilities. After issuing the bonds, the company was 60% debt financed and 40% common equity financed. Tropical intends to retire 20% of the bonds each year for the next five years and not to issue any new debt. Options- a. All things equal, we would expect Tropical Fruit Drinks cost of capital to decrease gradually over the next five years. b. All things equal, we would expect Tropical Fruit Drinks cost of capital to stay the same for the next five years, then decrease rapidly. c. All things equal, we would expect Tropical Fruit Drinks cost of capital to stay the same for the next five years, then increase rapidly. d. All things equal, we would expect Tropical Fruit Drinks cost of capital to increase gradually over the next five years.
Carla Vista Inc. is considering two alternatives to finance its construction of a new $1.40 million plant. (a) Issuance of 140,000 shares of common stock at the market price of $10 per share. (b) Issuance of $1,400,000, 7% bonds at face value. Complete the following table. (Round earnings per share to 2 decimal places, e.g. 0.25.) Income before interest and taxes Interest expense from bonds Income before income taxes Income tax expense (40%) Net income Outstanding shares Earnings per share $ Indicate which alternative is preferable. Issue Stock $600,000 Net income is because of the additional shares of stock that are outstanding. $ V if stock is used. However, earnings per share is Issue Bond $600,000 460,000 V than earnings per share if bonds are used
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Ivanhoe Company is considering these two alternatives for financing the purchase of a fleet of airplanes: 1. 2. Issue 52,500 shares of common stock at $44 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) Issue 10%, 10-year bonds at face value for $2,310,000. It is estimated that the company will earn $809,200 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 92,000 shares of common stock outstanding prior to the new financing. Determine the effect on net income and earnings per share for (a) issuing stock and (b) issuing bonds. Assume the new shares or new bonds will be outstanding for the entire year. (Round earnings per share to 2 decimal places, e.g. 2.66.) O î (a) Plan One Issue Stock $ (b) Plan Two Issue Bonds
What is required return on Green's equity after the restructuring?
None
Cullumber Company is considering these two alternatives for financing the purchase of a fleet of airplanes. 1. Issue 63,000 shares of common stock at $48 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) 2. Issue 13%, 15-year bonds at face value for $3,024,000. It is estimated that the company will earn $825,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 40% and has 94,100 shares of common stock outstanding prior to the new financing.Determine the effect on net income and earnings per share for issuing stock and issuing bonds. Assume the new shares or new bonds will be outstanding for the entire year. (Round earnings per share to 2 decimal places, e.g. $2.66.)
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QUESTION 1: Westjet Limited is considering building a new manufacturing plant to produce wjets on the land it bought 10 years ago for $5,000,000. The land is currently appraised at 15,000,000. The construction cost of the plant will be $50,000,000. The following market data on the Westjet Limited is current: Common Stock: 2,000,000 shares, selling for $100 each; the beta is 1.5 Debt: 100,000 7% annual coupon bonds, 20 years to maturity, selling for 111.47% of par value. The bonds have $1000 par value each. 1,000,000 shares of 3.5% preferred stock outstanding, selling for $70 per share. Par value is $100 each. Preferred Stock: Expected return on the market 8%, the risk free rate of return is 3%, and the corporate tax rate is 40%. An initial investment of $10,000,000 in net working capital is required. a. Determine the weighted average cost of capital. b. The plant will have 25 years life, will be depreciated straight line, and will have zero salvage value after 25 year. Land will be…

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