n January 1, 2024, the Proctor's Restaurant decides to invest in Lake Myrth bonds. The bonds mature on December 31, 2031, and pay inte
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
On
1,
the
Restaurant decides to invest in Lake
bonds. The bonds mature on December 31,
and pay interest on June 30 and December 31 at
annually. The market rate of interest was
on January 1,
so the
maturity
intends to hold the bonds until December 31,2031.
1.
|
Journalize the transactions related to
Proctor's
investment in Lake
Myrth
bonds during
2024.
|
2.
|
In what category would
Proctor's
report the investment on the December 31,
2024,
balance sheet? |
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