During the few previous years, Company J has been controlled with the aid of high price of capital to make investments. Recently, it is observed that, capital costs have been deteriorating and firm has decided to notice severely at a primary expansion program suggested by marketing and advertising department. For this purpose, the major task for the company is to estimate its cost of capital. To discuss: Two primary ways used by companies to raise common equity.

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Answer 1

Question

Chapter 11, Problem 4MC

d)

1)

Summary Introduction

Case summary:

During the few previous years, Company J has been controlled with the aid of high price of capital to make investments. Recently, it is observed that, capital costs have been deteriorating and firm has decided to notice severely at a primary expansion program suggested by marketing and advertising department. For this purpose, the major task for the company is to estimate its cost of capital.

To discuss: Two primary ways used by companies to raise common equity.

2)

Summary Introduction

To discuss: The main reason relating to the cost associated with reinvested earnings.

3)

Summary Introduction

To determine: Estimated cost of equity of Company J by using CAPM approach.

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At year-end 2019, Wallace Landscaping’s total assets were $2.30 million, and its accounts payable were $430,000. Sales, which in 2019 were $2.9 million, are expected to increase by 20% in 2020. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to $630,000 in 2019, and retained earnings were $330,000. Wallace has arranged to sell $180,000 of new common stock in 2020 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2020. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 5%, and 50% of earnings will be paid out as dividends. What was Wallace's total long-term debt in 2019? Round your answer to the nearest dollar. $ What were Wallace's total liabilities in…

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Smiley Corporation's current sales and partial balance sheet are shown below. This year Sales $ 10,000 Balance Sheet: Liabilities Accounts payable $ 2,000 Notes payable $ 2,000 Accruals $ 1,400 Total current liabilities $ 5,400 Long-term bonds $ 2,000 Total liabilities $ 7,400 Common stock $ 1,000 Retained earnings $ 2,500 Total common equity $ 3,500 Total liabilities & equity $ 10,900 Sales are expected to grow by 8% next year. Assuming no change in operations from this year to next year, what are the projected spontaneous liabilities? Do not round intermediate calculations. Round your answer to the nearest dollar.

Answer 2

Question

Chapter 11, Problem 4MC

d)

1)

Summary Introduction

Case summary:

During the few previous years, Company J has been controlled with the aid of high price of capital to make investments. Recently, it is observed that, capital costs have been deteriorating and firm has decided to notice severely at a primary expansion program suggested by marketing and advertising department. For this purpose, the major task for the company is to estimate its cost of capital.

To discuss: Two primary ways used by companies to raise common equity.

2)

Summary Introduction

To discuss: The main reason relating to the cost associated with reinvested earnings.

3)

Summary Introduction

To determine: Estimated cost of equity of Company J by using CAPM approach.

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Answer 3

Question

Chapter 11, Problem 4MC

d)

1)

Summary Introduction

Case summary:

During the few previous years, Company J has been controlled with the aid of high price of capital to make investments. Recently, it is observed that, capital costs have been deteriorating and firm has decided to notice severely at a primary expansion program suggested by marketing and advertising department. For this purpose, the major task for the company is to estimate its cost of capital.

To discuss: Two primary ways used by companies to raise common equity.

2)

Summary Introduction

To discuss: The main reason relating to the cost associated with reinvested earnings.

3)

Summary Introduction

To determine: Estimated cost of equity of Company J by using CAPM approach.

Expert Solution & Answer

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Answer 4

Question

Chapter 11, Problem 4MC

d)

1)

Summary Introduction

Case summary:

During the few previous years, Company J has been controlled with the aid of high price of capital to make investments. Recently, it is observed that, capital costs have been deteriorating and firm has decided to notice severely at a primary expansion program suggested by marketing and advertising department. For this purpose, the major task for the company is to estimate its cost of capital.

To discuss: Two primary ways used by companies to raise common equity.

2)

Summary Introduction

To discuss: The main reason relating to the cost associated with reinvested earnings.

3)

Summary Introduction

To determine: Estimated cost of equity of Company J by using CAPM approach.

Expert Solution & Answer

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Answer 5

Chapter 11, Problem 4MC

d)

1)

Summary Introduction

Case summary:

During the few previous years, Company J has been controlled with the aid of high price of capital to make investments. Recently, it is observed that, capital costs have been deteriorating and firm has decided to notice severely at a primary expansion program suggested by marketing and advertising department. For this purpose, the major task for the company is to estimate its cost of capital.

To discuss: Two primary ways used by companies to raise common equity.

2)

Summary Introduction

To discuss: The main reason relating to the cost associated with reinvested earnings.

3)

Summary Introduction

To determine: Estimated cost of equity of Company J by using CAPM approach.

Answer 6

Chapter 11, Problem 4MC

d)

1)

Summary Introduction

Case summary:

During the few previous years, Company J has been controlled with the aid of high price of capital to make investments. Recently, it is observed that, capital costs have been deteriorating and firm has decided to notice severely at a primary expansion program suggested by marketing and advertising department. For this purpose, the major task for the company is to estimate its cost of capital.

To discuss: Two primary ways used by companies to raise common equity.

Answer 7

Chapter 11, Problem 4MC

d)

1)

Summary Introduction

Case summary:

During the few previous years, Company J has been controlled with the aid of high price of capital to make investments. Recently, it is observed that, capital costs have been deteriorating and firm has decided to notice severely at a primary expansion program suggested by marketing and advertising department. For this purpose, the major task for the company is to estimate its cost of capital.

To discuss: Two primary ways used by companies to raise common equity.

Answer 8

2)

Summary Introduction

To discuss: The main reason relating to the cost associated with reinvested earnings.

Answer 9

2)

Summary Introduction

To discuss: The main reason relating to the cost associated with reinvested earnings.

Answer 10

3)

Summary Introduction

To determine: Estimated cost of equity of Company J by using CAPM approach.

Answer 11

3)

Summary Introduction

To determine: Estimated cost of equity of Company J by using CAPM approach.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 11 - Define each of the following terms: Weighted...Ch. 11 - Prob. 2Q Ch. 11 - Prob. 3Q Ch. 11 - Distinguish between beta (i.e., market) risk,...Ch. 11 - Suppose a firm estimates its overall cost of...Ch. 11 - 11-1 After-Tax Cost of Debt Calculate the...Ch. 11 - Prob. 2P Ch. 11 - Cost of Preferred Stock Duggins Veterinary...Ch. 11 - Prob. 4P Ch. 11 - Prob. 5P

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To discuss: The main reason relating to the cost associated with reinvested earnings.

To determine: Estimated cost of equity of Company J by using CAPM approach.

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