Bundle: Fundamentals of Financial Management, 14th + MindTap Finance, 1 term (6 months) Printed Access Card
14th Edition
ISBN: 9781305777118
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 14, Problem 10Q
Summary Introduction
To identify: Whether the optimal capital structure after the breakup is same as the pre-breakup optimal capital structure.
Introduction:
Capital Structure:
Capital structure refers to the securities or debt included in the total capital of the firm. Optimum capital structure is required for the optimum utilization of funds.
Answer:
No, the optimal capital structure after the breakup is not same as the pre-breakup optimal capital structure.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
King Company is contemplating the purchase of a smaller company, which is a distributor of King's products. Top management of King is convinced that the acquisition will result in significant synergies in its selling and distribution functions. The financial management group (of which you are a part) has been asked to prepare some analysis of the effects of the acquisition on the combined company's financial statements. This is the first acquisition for King, and some of the senior staff insist that based on their recollection of goodwill accounting, any goodwill recorded on the acquisition will result in a “drag” on future earnings for goodwill amortization. Other younger members on the staff argue that goodwill accounting has changed. Your supervisor asks you to research this issue.
Instructions
If your school has a subscription to the FASB Codification, log in and prepare responses to the following. Provide Codification references for your responses.
a. Identify the accounting…
Pls select the correct option and explain it.
The board of directors of Purdido Corporation have just directed Purdido’s officers to abandon further efforts to complete an acquisition of all the outstanding common stock of Sontee Company in a business combination that would have resulted in a parent company–subsidiary relationship between Purdido and Sontee. After learning of the board’s decision, Purdido’s chief financial officer instructed the controller, a CPA who is a member of the AICPA, the FEI, and the IMA (see Chapter 1), to analyze the out-of-pocket costs of the abandoned proposed combination. After some analysis of Purdido’s accounting records, the controller provided the following summary to the CFO:PURDIDO CORPORATIONOut-of-Pocket Costs of Abandoned Business CombinationApril 17, 2005Legal fees relating to proposed business combination ………………………………$120,000Finder’s fee relating to proposed business combination …………………………………….0*Costs associated with proposed SEC registration statement forPurdido common stock to have been…
Chapter 14 Solutions
Bundle: Fundamentals of Financial Management, 14th + MindTap Finance, 1 term (6 months) Printed Access Card
Ch. 14 - Changes in sales cause changes in profits. Would...Ch. 14 - Would each of the following increase, decrease, or...Ch. 14 - Discuss the following statement: All else equal,...Ch. 14 - Prob. 4QCh. 14 - Prob. 5QCh. 14 - Why do public utilities generally use different...Ch. 14 - Why is EBIT generally considered independent of...Ch. 14 - Is the dept level that maximizes a firms expected...Ch. 14 - If a firm goes from zero dept to successively...Ch. 14 - Prob. 10Q
Ch. 14 - A firm is about to double its assets to serve its...Ch. 14 - Prob. 1PCh. 14 - Prob. 2PCh. 14 - Prob. 3PCh. 14 - UNLEVERED BETA Harley Motors has 10 million in...Ch. 14 - FINANCIAL LEVERAGE EFFECTS Firms HL and LL are...Ch. 14 - BREAK-EVEN ANALYSIS The Weaver Watch Company sells...Ch. 14 - Prob. 7PCh. 14 - HAMADA EQUATION Cyclone Software Co. is trying to...Ch. 14 - RECAPITALIZATION Tapley Inc. currently has total...Ch. 14 - BREAKEVEN AND OPERATING LEVERAGE a. Given the...Ch. 14 - RECAPITALIZATION Currently, Bloom Flowers Inc. has...Ch. 14 - BREAKEVEN AND LEVERAGE Wingler Communications...Ch. 14 - FINANCING ALTERNATIVES The Severn Company plans to...Ch. 14 - WACC AND OPTIMAL CAPITAL STRUCTURE Elliott...Ch. 14 - OPTIMAL CAPITAL STRUCTURE Assume that you have...Ch. 14 - Prob. 1TCLCh. 14 - Exploring the Capital Structures for Four...
Knowledge Booster
Similar questions
- Choose all that are not appropriate statements regarding business combinations and divestures. 1. A businesses that is in an industry where economies of scale is observed have an incentive to enlarge its operation through a merger. 2. A corporation is sometimes forced to divest a part of its business due to its excessive market power. 3. Two corporations that are planning to merge as equal partners should create a new legal entity (a "business combination") because that would be less costly than absorbing one corporation into another (an "absorption"). 4. A corporation seeking to acquire another corporation can do so by buying shares of the target through the open market. 5. The board of a corporation that have agreed to merge with another corporation should categorically reject a merger offer from another corporation because that would result in a breach of contract for the first merger agreement.arrow_forwardThree years ago, a similar effort by HP was rebuffed. Why did it go through with it now? If HP splits into two separate businesses, would this generate value for shareholders?arrow_forwardThe Blumen Yacht Building Company buys Marine Parts Corporation, a furm that makes shipbuilding components, despite the opposition of Marine's board of directors and its top management. This is an example of a(n) a) accommodation b) divestiture C merger )d) hostile takeoverarrow_forward
- In the United States, there are various forms of economic oversight that are performed bythe government. Sometimes the government will step in when they feel the need toencourage competition in a particular industry and to break up companies that have nearlycomplete control over a particular market. What is this called when the government initiatesaction against companies that appear to have too much power?arrow_forwardIn 2012, Delta airlines acquired an oil refinery in Pennsylvania. This is an example of what type of merger?arrow_forwardIn Chapter 3 of our text, we learn about the concept of “control”, as it relates to consolidations. Specifically, control refers to the situation where a parent company owns a controlling financial interest in another company, whether that company is incorporated or not (such as a trust or partnership). Consolidation of entities that are not majority-owned is opposed by some companies, particularly biotechnology and pharmaceutical concerns, whose financial strength could be hurt by reporting consolidated financials. Accounting professionals have argued that some firms deliberately avoid consolidating results by owning less than 50% of the voting stock in an entity, even though they effectively control it by hiring and firing management. In what instances would a company want to consolidate an entity of which the company owns less than 50%? Discuss ways that a company can control another with less than majority ownership.arrow_forward
- Due to recent beef recalls southwest steakhouse is considering incorporating. Bob the owner wants to protect his personal assets in the event the restaurant is sued. SEE THE QUESTIONS ATTACHED BELOW.arrow_forwardwhat is a good response to this post? Why must the eliminating entries be entered in the consolidation worksheet each time consolidated statements are prepared? Eliminating entries are crucial in the consolidation worksheet because they ensure that any intercompany transactions and balances are removed from the consolidated financial statements. This prevents double counting and provides a clear and accurate representation of the consolidated entity’s financial position. For instance, if a parent company and its subsidiary have intercompany sales, the revenue recorded by the parent and the corresponding expense recorded by the subsidiary must be eliminated to avoid inflating the consolidated revenues and expenses. Without these entries, the financial statements would not reflect the true economic substance of the group as a single entity (Phillips et al., 2021). How might this process under a GAAP basis compare to that under an IFRS basis? Under Generally Accepted Accounting…arrow_forward1) Shrimp Boat Company decides to consolidate its operations with Trawlers, Inc., to form Unique Fishers Corporation (UFC). Trawlers had rights in certain property. After the consolidation, UFC acquires the rights: A.automatically. B.only after completing certain additional statutory procedures. C.only if Trawlers' former shareholders expressly approve. D.only if the acquisition is a specified result of the consolidation. 2) Jake is the maker of a $2,000 promissory note payable to Kim. Kim indorses the note to Lou who, in turn, indorses it to Mona, who then indorses it to Nat, the present holder. Nat properly presents the note to Jake for payment, but Jake dishonors it. With timely notice to the proper parties, Nat may collect payment on the note from Kim, Lou, or Mona. Kim or Lou only. Mona only. no one.arrow_forward
- Minority shareholders of Midwest Technical Institute Development Corporation, a closed-end investment company owning assets consisting principally of securities of companies in technological fields, brought a shareholder derivative suit against officers and directors of Midwest, seeking to recover on Midwest’s behalf profits that the officers and directors realized through dealings in stock held in Midwest’s portfolio in breach of their fiduciary duty. Approximately three years after commencement of the action, a new corporation, Midtex, was organized to acquire Midwest’s assets. May the shareholders now add Midtex as a party defendant to their suit? Why or why not?arrow_forwardABC Corp, a public limited company, operates in the energy and power sector. The companyhas experienced significant growth in recent years and has expanded its operationinternationally by the acquisition of overseas subsidiaries. Group policy is to translate thefinancial statements of these subsidiaries using the closing rate method with goodwillcalculated at the rate of exchange ruling at the date of acquisition.One of these subsidiaries, XYZ, is incorporated in a country that is suffering from a very highinflation (120% over the last 3 years) as a result of political and economic problems.Additionally, it is difficult to repatriate funds from the country. ABC Corp owned 91% of theshares of XYZ, with the foreign government owning the balance. Most of the productsproduced by XYZ are sold locally, but approximately 10 % of the product sold at cost to ABC.Because of a dispute XYZ has created a provision for doubtful debt against an intercompanyamount owing from ABC. As a part of its risk…arrow_forwardWhich of the following situations best describes a business combination to be accounted for as a statutory merger? Select one: a. Two companies combine to form a new third company, and the original two companies are dissolved. b. One company transfers assets to another company it has created c. Both companies in a combination continue to operate as separate, but related, legal entities. d. Only one of the combining companies survives and the other loses its separate identityarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Business/Professional Ethics Directors/Executives...AccountingISBN:9781337485913Author:BROOKSPublisher:Cengage
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTBusiness Its Legal Ethical & Global EnvironmentAccountingISBN:9781305224414Author:JENNINGSPublisher:Cengage
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Business/Professional Ethics Directors/Executives...
Accounting
ISBN:9781337485913
Author:BROOKS
Publisher:Cengage
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Business Its Legal Ethical & Global Environment
Accounting
ISBN:9781305224414
Author:JENNINGS
Publisher:Cengage