Concept explainers
Concept Introduction:
Bonds:
Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date. Bonds may be issued at a premium or discount.
Stocks (Common Stock and Preferred Stock):
There are two types of the share capital of a company. Common Stock represents the Common shares issued to the shareholders and preferred stock represents the
To Indicate:
If the advantages and disadvantages of issuing preferred stock and bonds
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Survey of Accounting (Accounting I)
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- Outdoor Adventure Company is considering raising additional capital for further expansion. The company wants to finance a new business venture into guided trips down the Amazon River in South America. Additionally, the company wants to add another building on their land to offer more services for local customers. 1 (Click the icon to viewing the financing information.) More Info Read the requirements. Requirement 1. Will the bonds issue at face value, a premium, or a discount? Outdoor Adventure Company plans to raise the capital by issuing $1,200,000 of 9%, six-year bonds on January 2, 2020. The bonds pay interest semiannually on June 30 and December 31. The company receives $1,198,320 when the bonds are issued. Outdoor Adventure's bonds will be issued at because The company also issues a mortgage payable for $500,000 on January 2, 2020. The proceeds from the mortgage will be used to construct the new building. The mortgage requires annual payments of $25,000 plus interest for twenty…arrow_forwardCompute: 1. The minimum required return by Cross-Ocean’s debtholders 2. The minimum required return by Cross-Ocean’s common shareholdersarrow_forwardAmy Tanner is an analyst for a US pension fund. Her supervisor has asked her to value the stocks of General Electric (GE) and General Motors (GM) Tanner wants to evaluate the appropriateness of the dividend discount model (DDM) for valuing GE and GM and has compiled the following data for the two companies from 211 to 2018. GE GM EPS ($) DPS ($) pay-out EPS ($) Ratio DPS ($) Year рay-out Ratio 2018 2.17 1.15 0.53 -68.45 1.00 -0.01 2017 1.99 1.03 0.52 -3.5 1.00 -0.29 2016 1.76 0.91 0.52 -18.5 2.00 -0.11 2015 1.61 0.82 0.51 4.94 2.00 0.40 2014 1.55 0.77 0.50 5.03 2.00 0.40 2013 1.51 0.73 0.48 3.35 2.00 0.60 2012 1.41 0.66 0.47 1.77 2.00 1.13 2011 1.27 0.57 0.45 6.68 2.00 0.30 For each of the stocks, do a critical analysis and suggest whether the DDM is appropriate for valuing the stocks.arrow_forward
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