Inversely, when a share repurchase is seen as treasury stock, the cost of the treasury stock is naturally disclosed as a decrease in total shareholders’ equity. Alcoa would report the purchase of the treasury stock by debiting treasury stock and crediting cash for the charge of the purchase. The treasury stock ought to be disclosed independently in the shareholders' equity area of Alcoa’s balance sheet as an unallocated cut of shareholders' equity. These shares are treated as issued although not part of common stock outstanding. If subsequently resold for a sum larger than the cost, Alcoa should report for the sale of the treasury stock by debiting cash for the sale cost, crediting treasury stock for cost, and crediting additional paid-in capital from repurchased stock for the excess of the selling price over the cost.
Apparently, her calculation is wrong. To find the cost of debt, we should use the yield to maturity approach: PV=t=1Tc×FV(1+y)T+FV(1+y)T Nike’s bond with a current price of $95.60 will expire on 2021. If the NorthPoint Group decides to invest in 2001, interests will be paid semi-annually for 20 years at a rate of 6.75%. Thus we can calculate the current yield to maturity of the bond to represent the cost of debt before tax as following: 95.6=i=1406.75%×100(1+y)40+100(1+y)40 Question 4: What is your estimate of the debt cost of capital? According to
ECO 372 FINAL EXAM 1. Consider if the government instituted a 10% income tax surcharge. In terms of the AS/AD model this change should have a. shifted the AD curve to the left b. shifted the AD curve to the right c. made the AD curve flatter d. made AD curve steeper 2. If the depreciation of a country’s currency increases it aggregate expenditures by 20, the AD curve will a. shift right by more than 20 b. shift right by less than 20 c. shift right by exactly 20 d. not shift at all 3. Suppose that consumer spending is expected to decrease in the near future.
Leveraged Buyout (“LBO”): Assuming an IRR (usually 20 percent to 30 percent), what would a financial buyer be willing to pay? Usually provides a floor valuation. 3. Of the valuation methodologies, which ones are likely to result in higher/lower value? Precedents usually yield higher valuations than trading comps because a buyer must pay shareholders more than the current trading price to acquire a company.
$2,040,500 B. $2,212,500 C. $2,260,500 D. $2,171,500 E. $2,071,500 Difficulty: Medium 4. A company should always use the equity method to account for an investment if A. It has the ability to exercise significant influence over the operating policies of the investee B. It owns 30% of another company's stock C. It has a controlling interest (more than 50%) of another company's stock D. The investment was made primarily to earn a return on excess cash E. It does not have the ability to
(0.5 points) 50% c. A company has $1,400 in liabilities and $1,500 in assets. Calculate the company's debt ratio as a percentage. (0.5 points) 93.3% d. A company has $1,400 in liabilities and $1,500 in equity. Calculate the company's debt to equity ratio as a percentage. (0.5 points) 93.3% e. A company's current assets are $30,000 and current liabilities are
(Points : 5) | $50,000 $16,500 $25,500 $7,500 $5,000 | Question 3. 3. (TCO A) Under the equity method, when the company's share of cumulative losses equals its investment and the company has no obligation to fund such additional losses, which of the following statements is true? (Points : 5) | The investor should change to the fair-value method to account for its investment. The investor should report these losses as extraordinary items.
There is $2.5 million sinking fund required which leaves $12.5 million outstanding at maturity. The issues with this method are as follows: Long-term-debt can be burdensome and can stunt or slow growth of the company. The company has to payback what was borrowed plus the interest on the debt. It also puts stockholders and management who are primary holders of stock at risk, because if the company earnings are substantially lower than what was forecasted then the bondholders can virtually gain control of company. The second alternative would be the possibility of issuing new common stock of 3 million shares offered at $17.75 per share.
Continental Carriers Continental Carriers, Inc. Advanced Financial Management Continental Carriers, Inc. (CCI) should take on the long-term debt to finance the acquisition of Midland Freight, Inc. for a few reasons. The company is heavy on assets, the debt ratio will only grow to 0.40 with the added $50M in debt. Also, the firm will benefit from an added $2M in a tax shield and be able to return $12.7M a year to its stockholders and investors, instead of $8.9M if equity is raised to finance the acquisition. Lastly, the stock price and earnings per share will increase to $3.87 in comparison to an equity-financed acquisition of $2.72 per share. CCI would be taking a somewhat high risk by issuing additional stock due to the uncertainty about the offering price.
The company regularly calculated “warranted equity value” for its common shares and repurchased its stock whenever the market price fell substantially below that value. The cost of capital for Marriott and for each of the three divisions individually could differ in each of the divisions resulting in varying cost of capital. In order for Marriott to only invest in a project, the internal rate of return (IRR) needs to be greater than the hurdle rate. To accurately determine the opportunity cost of capital. We will apply the cost of capital as the hurdle rate to discount future cash flows for the investment projects of the firm’s three divisions.