Johnson Inc. wishes to expand its facilities. The company currently has 6 million shares outstanding and no debt. The stock sells for $50 per share, but the book value per share is $20. Net income for Johnson is currently $12 million. The new facility will cost $20 million, and it will increase net income by $800,000. Johnson raises stock at the current price to finance the facility. Assume a constant Orice-earnings ratio. Does book value dilution occur? O book value dilution does not occur.
Q: 1. Calculate the estimated total gross profit on the contract as of December 31, 2017, 2018, and…
A: December 31, 2019:Costs incurred to date: $8,000,000Estimated costs to complete: $6,000,000Estimated…
Q: On January 2, 2020, Carla Corporation issued $1,200,000 of 10% bonds at 96 due December 31, 2029.…
A: The loss on redemption of the bond payable is recorded when the amount paid for such redemption is…
Q: Summer Repair Shop has a monthly target operating income of $40,000. Variable expenses are 85% of…
A: The margin of safety sales means difference between current sales and break even sales. Break even…
Q: Riley and Gretchen run a shuttle service from Times Square to New York's JFK airport. Last month,…
A: Net income after taxes = (Revenue - Expenses)×(1-tax rate)
Q: Bond Company budgets the following purchases of direct materials for the first quarter of the year:…
A: Budget is the estimation of revenue and expense prior to start the operation. To manage the working…
Q: Return on assets and cost of financing Non-current Assets: $1,260,000 Current Assets: $250,000…
A: Since you have posted multiple questions, we will provide the solution only to the first question as…
Q: The SP Corporation makes 35,000 motors to be used in the production of its sewing machines. The…
A: Fixed cost should not be considered as they are not relevant for decision making
Q: Hoosier Incorporated is an Indiana corporation. It properly included, deducted, or excluded the…
A: Indiana state tax is a type of tax that is paid by the Indiana businessman at the state and federal…
Q: The financial statements for Armstrong and Blair companies are summarized here: Armstrong Company…
A: Financial statement analysis applies analytical tools to financial statements for the interpretation…
Q: Holbrook, a calendar year S corporation, distributes $15,000 cash to its only shareholder, Cody, on…
A: AAA stands for accumulated adjustment account that contains the undistributed earnings of S…
Q: Calculate the weighted average number of common shares to use in calculating earnings per common…
A: The weighted average number of shares refers to a calculation used to determine the average number…
Q: Enter the month-end totals from the Cash Receipts journal. Enter the month-end totals from the Cash…
A: There are four types of general other than general journals i.e., cash receipt journal, cash…
Q: On January 1, 2020, Bramble Corp. issued 10-year bonds with a face amount of $1,000,000 and a stated…
A: BOND Bond is a Financial Securities which is Generally Issued by the Corporation's, Government…
Q: Able Company issued $1,080,000 of 9 percent first mortgage bonds on January 1, 20X1, at 104. The…
A: Corporate Bonds - It is a type of debt security that businesses utilize to establish financial…
Q: Aylmer-in-You (AIY) Inc. projects unit sales for a new opera tenor emulation implant as follows:…
A: Net present value refers to the method of capital budgeting used for estimating the viability of the…
Q: Allowance Method On March 10, Gardner, Inc. declared a $900 account receivable from the Gates…
A: The Allowance for Accounts Receivable is recorded separately to show the estimated value for…
Q: 34 2007 Sitewide Company's net income was $270,000. Given the account information below, what is the…
A: CASH FLOW STATEMENT Cash flow statement is additional information to user of financial statement.…
Q: QUESTION 5 a) Define a business holding an investment. b) State and explain the 2 criteria to…
A: A holding company is a controlling shareholder, corporate body, or partnership that owns a…
Q: Vancouver Shakespearean Theater's board of directors is considering the replacement of the theater's…
A: As per the given information: Cost of new lighting system - $150,950Cost saving - $31,000 for the…
Q: K Doily Company manufactures pillows. For 2020, the company expects fixed overhead costs of…
A: Variance analysis is a technique of compression between budgeted and actual data. There are various…
Q: Required: a. Calculate cost of goods sold and ending inventory under the following cost flow…
A: a. Units Rate cost Beginning Inventory 1000 $4 $4,000 Purchases 1200…
Q: On November 30, 2019, a U.S. company, with a December 31 year-end, enters a forward purchase…
A: Forward contract is an agreement between two parties to buy or sell an asset at a prespecified price…
Q: The debits to Work in Process Assembly Department for April, together with data concerning…
A: Disclaimer: "Since you have asked multiple questions, we will solve the first question for you. If…
Q: Egoy Company is a producer of coffee. The entitty is considering the valuation of harvested coffee…
A: On December 31, 2016: Costing of harvested coffee beans - P3,000,000.00 Fair value less cost to sell…
Q: 4. You buy a EUR 5,000,000 5-year zero coupon bond with a semi-annual Yield-to-Maturity of 1.50%.…
A: Coupon bond or Bonds with coupons: Typically, bonds with coupons are addressed in terms of the…
Q: An optimal forecast made using rational expectations provides a certain rate of return for a stock.…
A: Since you have posted multiple questions, we will be solving only the first question as per the…
Q: Problem 21-27 (LO. 3, 8) Liz and John formed the equal LJ Partnership on January 1 of the current…
A: As per the provision of 704(b) is any partner contributing asset as part of his capital contribution…
Q: Q3. chapter 9
A: Bond discount: Bond discount is the amount by which the selling price (or issue price or market…
Q: (a) What is meant by the term alpha? (b) Suppose the CAPM holds. A stock has a beta of 0.8. If the…
A: CAPM is a Capital asset pricing model which is used to compute the expected return on the stock by…
Q: Several years ago Brant, Inc., sold $900,000 in bonds to the public. Annual cash interest of 9…
A: A bond refers to the instrument which is issued by the government to borrow money when needed. It is…
Q: If Blue Corporation elects to amortize the research and experimental expenditures over 60 months,…
A: The systems theory of management offers a helpful framework for comprehending the intricate…
Q: Federal Semiconductors issued 8% bonds, dated January 1, with a face amount of $750 million on…
A:
Q: Valuing Inventory at Lower-of-Cost-or-Market Gard Inc. has compiled the following information…
A: Valuation of inventory is the process followed by the entities at the end of the given period to…
Q: On November 1, 2022, the following were the account balance of Soho Equipment Repair. Cash Accounts…
A: Trial Balance :— It is the list that shows debit and credit balance of all ledger accounts. It is…
Q: Analyzing an Inventory Footnote Disclosure Illinois Tool Works reports the following footnote in its…
A: LIFO reserve is also known as LIFO allowance, revaluation to LIFO and excess of FIFO over LIFO cost.…
Q: Discount Amortization On the first day of the fiscal year, a company issues a $3,000,000, 11%,…
A: Bond :— It is one of the type of securities that pays fixed periodic interest and face value amount…
Q: For February, sales revenue is $615,000; sales commissions are 6% of sales; the sales manager's…
A: Introduction:- A selling expense is a cost incurred to promote and market products to customers.…
N4
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- Johnson Inc. wishes to expand its facilities. The company currently has 6 million shares outstanding and no debt. The stock sells for $50 per share, but the book value per share is $20. Net income for Johnson is currently $12 million. The new facility will cost $20 million, and it will increase net income by $800,000. Johnson raises stock at the current price to finance the facility. Assume a constant price–earnings ratio. Does stock price dilution occur? (A) stock price dilution occurs. (B) stock price dilution does not occur.Marker, Incorporated, wishes to expand its facilities. The company currently has 5 million shares outstanding and no debt. The stock sells for $40 per share, but the book value per share is $53. Net income is currently $3.6 million. The new facility will cost $20 million, and it will increase net income by $280,000. The par value of the stock is $1 per share. Assume a constant price-earnings ratio. a-1. Calculate the new book value per share. Assume the stock price is constant. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a-2. Calculate the new total earnings. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) a-3. Calculate the new EPS. Include the incremental net income in your calculations. (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) a-4. Calculate the new stock price. Include…Wayne, Inc., wishes to expand its facilities. The company currently has 6 million shares outstanding and no debt. The stock sells for $28 per share, but the book value per share is $8. Net income is currently $4.2 million. The new facility will cost $42 million, and it will increase net income by $810,000. Assume a constant price-earnings ratio. a-1. Calculate the new book value per share. (Do not round intermediate calculations
- Cede & Co. expects its EBIT to be $56,000 every year forever. The firm can borrow at 8 percent. The firm currently has no debt, its cost of equity is 12 percent, and the tax rate is 23 percent. Assume the firm borrows $155,000 and uses the proceeds to repurchase shares. a. What is the cost of equity after recapitalization? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)Rian Corporation is currently working without using debt. The estimated operating profit per year is $16.065,180.00 while the equity capitalization rate (ke) is 18% pa. In the coming year, Rian is considering replacing some of his shares with a debt of $50 million, with an interest rate of 15% per annum. Question: a. Calculate the value of own capital capitalization (CS), the total capitalization value of the company (V), and the overall capitalization rate (ko) using the Net Income Approach. b. Calculate the amount of equity capitalized value, total capitalization value of the company, and overall capitalization rate using the traditional approach, if additional debt causes the equity capitalization rate (ke) to increase to 20%. c. Draw a graph of the two approaches.Kohwe Corporation plans to issue equity to raise $50 million to finance a new investment. After making the investment, Kohwe expects to earn free cash flows of $10 million each year. Kohwe currently has 5 million shares outstanding, and has no other assets or opportunities. Suppose the appropriate discount rate for Kohwe's future free cash flows is 8%, and the only capital market imperfections are corporate taxes and financial distress costs. a. What is the NPV of Kohwe's investment? b. What is Kohwe's share price today? Suppose Kohwe borrows the $50 million instead. The finn will pay interest only on this loan each year, and maintain an outstanding balance of $40 million on the loan. Suppose that Kohwe's corporate tax rate is 35%, and expected free cash flows are still $9 million each year. c. What is Kohwe's share price today if the investment is financed with debt? Now suppose that with leverage, Kohwe's expected free cash flows wiH decline to $8 million per year due…
- Cede & Co. expects its EBIT to be $54,000 every year forever. The firm can borrow at 6 percent. The firm currently has no debt, its cost of equity is 10 percent, and the tax rate is 21 percent. Assume the firm borrows $151,000 and uses the proceeds to repurchase shares. a. What is the cost of equity after recapitalization? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of equity b. WACC % %BhupatbhaiSuppose that Rose Industries is considering the acquisition of another firm in its industry for $137 million. The acquisition is expected to increase Rose's free cash flow by $5 million the first year, and this contribution is expected to grow at a rate of 4% every year thereafter. Rose currently maintains a debt to equity ratio of 1, its corporate tax rate is 21%, its cost of debt rD is 6%, and its cost of equity rE is 10%. Rose Industries will maintain a constant debt-equity ratio for the acquisition. The Free Cash Flow to Equity (FCFE) for the acquisition in year O is closest to ($ Million) (2 decimal places):
- Trower Corp. has a debt−equity ratio of .80. The company is considering a new plant that will cost $103 million to build. When the company issues new equity, it incurs a flotation cost of 7.3 percent. The flotation cost on new debt is 2.8 percent. What is the initial cost of the plant if the company raises all equity externally? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to the nearest whole dollar, e.g., 1,234,567.) Initial cash outflow $ What is the initial cost of the plant if the company typically uses 55 percent retained earnings? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to the nearest whole dollar, e.g., 1,234,567.) Initial cash outflow $ What is the initial cost of the plant if the company typically uses 100 percent retained earnings? (Enter your answer in dollars, not millions of dollars. Do not round…Suppose that Portsea Inc. is thinking about acquiring a firm in its industry for $150 million. The acquisition is expected to increase Portsea's free cash flow by $20 million in the first year, and this contribution is expected to grow at a rate of 3% every year thereafter. Assume that Portsea currently maintains a debt-to-equity ratio of 0.80, its corporate tax rate is 30%, its cost of debt is 4%, and its cost of equity is 14% . Further assume that Portsea will maintain a constant debt - equity ratio for the acquisition. What is the free cash flow to equity (FCFE) for the acquisition in year 0 ?ABC SAOG needs RO. 5 million for the installation of a new factory. The new factory expects to yield annual Earnings Before Interest and Tax (EBIT) of RO. 600,000. In choosing a financial plan, ABC SAOG has an objective of maximizing earnings per share (EPS). The company proposes to issue ordinary shares and raise the debt of RO. 500,000, RO. 1,500,000 or RO. 2,000,000. The current market price per share is RO. 350 and is expected to drop to RO. 150 if the funds are borrowed in excess of RO. 1,800,000. Funds can be borrowed at the following rates: Up to RO. 500,000 at 7% Over RO. 500,000 to RO. 2,000,000 at 9% Over RO. 2,000,000 at 14% Assuming a tax rate of 40%, advise the company.