Dividend Aristocrat Inc. (DA) borrowed $211,000 from Grow Business Bank to finance the purchase of equipmentcosting $158,250 and to provide $52,750 in cash. The legal documentation states that the loan matures in 20 years,and the principal is to be paid in annual instalments of $10,550. The terms of the loan also indicate that DA mustmaintain a current ratio of 1.25 and cannot pay dividends that will reduce retained earnings below $110,000. The2020 year-end statement of financial position, immediately prior to the bank loan and the purchase of equipment,follows:Current assetsNon-current assetsTotal assetsCurrent AssetsTotal liabilities andshareholders' equity $521,000Prepare the following statement of financial position assuming the maximum divided is declared and paid.Non-current Assets$97,240423,760Current Ratio$521,000$Current liabilitiesLong-term liabilitiesCommon sharesRetained earningsDividend Aristocrat Inc.Current Liabilities$68,000211,000105,000137,000Long-term LiabilitiesCommon SharesTotal AssetsCalculate the current ratio using the updated statement of financial position. (Round answer to 2 decimal places,e.g. 7.25.)$Retained EarningsTotal Liabilities andShareholder's Equity $in compliance with the loan agreeement.

A dividend is a portion of a company's profits and retained earnings that it pays to its…

Answered: Dividend Aristocrat Inc. (DA) borrowed…

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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The Supple Hardware Company has $2,000,000 in current assets and $600,000 in current liabilities. Its initial inventory level is $450,000, and it will raise funds as additional short-term notes payable and use them to increase inventory. How much can Supple's current liabilities (notes payable) increase without violating a contractual agreement (the debt covenant) with its bondholders that requires a minimum current ratio of 2 to 1? Compute the dollar value of 1) inventory, 2) total current assets, and 3) total current liabilities after the maximum new financing has been obtained and the funds allocated.
The Alpha Beta Company is attempting to establish a current assets policy. Fixed assets are $700,000, and the firm plans to maintain a 40% debt-to-assets ratio. Alpha Beta has no operating current liabilities. The interest rate is 12% on all debt. Three alternative current asset policies are under consideration: 30%, 40%, and 70% of projected sales. The company expects to earn 18% before interest and taxes on sales of $5 million. Alpha Beta’s effective federal-plus-state tax rate is 30%. What is the expected return on equity under each asset policy?
Sunrise, Incorporated, is trying to determine its cost of debt. The firm has a debt issue outstanding with 8 years to maturity that is quoted at 103.5 percent of face value. The issue makes semiannual payments and has an embedded cost of 5.2 percent annually. What is the company’s pretax cost of debt? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. If the tax rate is 21 percent, what is the aftertax cost of debt? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
An investment bank agrees to underwrite an issue of 15 million shares of stock for Looney Landscaping Corporation. a. The investment bank underwrites the stock on a firm commitment basis, and agrees to pay $10.00 per share to Looney Landscaping Corporation for the 15 million shares of stock. The investment bank then sells those shares to the public for $11.50 per share. How much money does Looney Landscaping Corporation receive? What is the profit to the investment bank? If the investment bank can sell the shares for only $8.50, how much money does Looney Landscaping Corporation receive? What is the profit to the investment bank? b. Suppose, instead, that the investment bank agrees to underwrite the 15 million shares on a best efforts basis. The investment bank is able to sell 13.5 million shares for $10.00 per share, and it charges Looney Landscaping Corporation $0.325 per share sold. How much money does Looney Landscaping Corporation receive? What is the profit to the investment…
Edwards Construction currently has debt outstanding with a market value of $116,000 and a cost of 12 percent. The company has EBIT of $13,920 that is expected to continue in perpetuity. Assume there are no taxes. a-1. What is the value of the company's equity? (Do not round intermediate calculations. Leave no cell blank - be certain to enter "0" wherever required.) a- What is the debt-to-value ratio? (Do not round intermediate calculations and round 2. your answer to the nearest whole number, e.g., 32.) b. What are the equity value and debt-to-value ratio if the company's growth rate is 5 percent? (Do not round intermediate calculations and round your "Debt-to- value" answer to 3 decimal places, e.g., 32.161.) c. What are the equity value and debt-to-value ratio if the company's growth rate is 8 percent? (Do not round intermediate calculations and round your "Debt-to- value" answer to 3 decimal places, e.g., 32.161.) Answer is complete but not entirely correct. a-1. Value of equity…
Maddux Corporation has an EBIT of $835,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 16 percent and the corporate tax rate is 21 percent. The company also has a perpetual bond issue outstanding with a market value of $2.1 million. What is the value of the company? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) Value of the company
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Softek Corporation forms a separate legal entity, Startek, to develop new technology. The entity is funded by $2,000,000 in outside equity and $26,000,000 in debt. Softek guarantees Startek's debt. The entity is expected to generate the following cash flows at the end of two years: Cash Flow Probability $14,520,000 0.50 42,350,000 0.20 60,500,000 0.30 A discount rate of 10 percent is appropriate. Required Assume qualitative analysis of Startek's VIE status is inconclusive. Quantitatively analyze whether Startek is a variable interest entity. Instructions: Use negative signs with your answers, when appropriate. • Enter $ answers in millions ($11,000,000 equals $11 million). • Enter Probability answers using decimals. Expected Present Cash Flow Value Probability Expected Investment Residual Expected Fair Value Returns S PV Gains $ $ Expected Losses
Muffin's Masonry Incorporated's balance sheet lists net fixed assets as $31 million. The fixed assets could currently be sold for $53 million. Muffin's current balance sheet shows current liabilities of $14.0 million and net working capital of $13.0 million. If all the current accounts were liquidated today, the company would receive $8.10 million cash after paying the $14.0 million in current liabilities What is the book value of Muffin's Masonry's assets today and the market value of these assets? Note: Enter your answers in millions of dollars rounded to 2 decimal places. (i.e., Enter 5,500,000 as 5.50.) Current assets Fixed assets Total BOOK VALUE MARKET VALUE (in millions of dollars) $ 0.00 $ 0.00
On December 31, 2020, Petra Company invests $40,000 in Valery, a variable interest entity. In contractual agreements completed on that date, Petra established itself as the primary beneficiary of Valery. Previously, Petra had no equity interest in Valery. Immediately after Petra's investment, Valery presents the following balance sheet: Cash Marketing software Computer equipment Total assets 40,000 160,000 60,000 $ 260,000 $ Required A Long-term debt Noncontrolling interest Petra equity interest Total liabilities and equity Each of the amounts represents an assessed fair value at December 31, 2020, except for the marketing software. The December 31 business fair value of Valery is assessed at $160,000. Required B a. If the carrying amount of the marketing software was undervalued by $45,000, what amounts for Valery would appear in Petra's December 31, 2020, consolidated financial statements? Complete this question by entering your answers in the tabs below. b. If the carrying amount of…

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