Question 2 Macy Berhad has issued share capital of 5,000,000 ordinary shares at a price of RM0.50 per share and 200,000 non-redeemable preference shares at a price of RM2 per share, in addition to borrowings in the form of 5% debentures totalling RM1,000,000. The board of directors are now recommending a final dividend of 5 sen per share to be paid to ordinary shareholders and 6 sen per share to be paid to preference shareholders. No interim dividends have been paid. Interest on debentures paid during the year was RM25,000. The remaining interest on debentures is still outstanding at year-end. (a) Show the necessary journal entries of the above dividend and debenture interest transactions. (show all workings) (b) Prepare the extract of Statement of Financial Position to show the above position at year-end.
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.
Question 2
Macy Berhad has issued share capital of 5,000,000 ordinary shares at a price of
RM0.50 per share and 200,000 non-redeemable
RM2 per share, in addition to borrowings in the form of 5% debentures
totalling RM1,000,000.
The board of directors are now recommending a final dividend of 5 sen per
share to be paid to ordinary shareholders and 6 sen per share to be paid to
preference shareholders. No interim dividends have been paid.
Interest on debentures paid during the year was RM25,000. The remaining
interest on debentures is still outstanding at year-end.
(a) Show the necessary
interest transactions. (show all workings)
(b) Prepare the extract of Statement of Financial Position to show the above
position at year-end.
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