(e) The announcement of a large issue of new stock could cause the stock price to fall. This loss is called "market pressure," and it is treated as a flotation cost because it is a cost to stockholders that is associated with the new issue. Student Answer: d Instructor Explanation: Answer is: d Chapter 20, pp. 791 - 798, 800 - 803 Points Received: 20 of 20 Comments: 2. Question : (TCO D) Europa Corporation is financing an ongoing construction project.
The parent receives annual dividends from the subsidiary of $2,500,000. If the parent's marginal tax rate is 34% and if the exclusion on intercompany dividends is 70%, what is the effective tax rate on the intercompany dividends, and how much net dividends are received? Question 20 New York Waste (NYW) is considering refunding a $50,000,000, annual payment, 14% coupon, 30-year bond issue that was issued 5 years ago. It has been amortizing $3 million of flotation costs on these bonds over their 30-year life. The company could sell a new issue of 25-year bonds at an annual interest rate of 11.67% in today's market.
What assumptions can you use to arrive approximately at the share price of $273,000 that was estimated by the dissenting shareholders? Show how these assumptions impact your valuation. 4. What is the maximum share price at which Herbert Kohler should be willing to settle with the dissenting shareholders in order to stop the trial on April 11, 2000? Assume that (i) if the trial proceeds it is expected to last less than a month and result in two possible outcomes in terms of the price per share established in court: the $273,000 claimed by the plaintiffs, or the $55,400 being defended by Herbert Kohler; (ii) Kohler estimates the probabilities of these outcomes at 30% and 70%, respectively.
$3,000,000 of the inventory happened secondary to a reversal of a previous write down, which was incurred in 2002. There may be questionable tactics involved and the account warrants further analysis. k) The overall decrease in sales and gross profit was due to a new player entering the market. With the entrance of “Stampy”, Elite had to cut their prices, in order to maintain their current market share. This would explain the difference in gross profit and sales revenue.
In deciding how to account for an unusual or unique transaction for financial reporting purposes, should one consider the tax treatment applied to the transaction? 3. Did Peat Marwick have a right to change its position on the proper accounting treatment for the stock redemptions? What factor or factors may have been responsible for Peat Marwick’s decision to change its position regarding these transactions? Facts In 1983, GEICO announced plans to purchase several million shares of its outstanding common stock for $60 per share.
First Round Capital proposed to invest $50,000 of equity capital into DLK, but on the condition that the investment firm be granted the right to elect five members to DLK’s board of directors. Discouraged by the “high cost” of external borrowing, Lacey decides to approach Kaylee and Doug. Lacey suggests to Kaylee and Doug that each of the three original investors contribute an additional $25,000 to DLK in exchange for five 20-year debentures. The debentures will be unsecured and subordinate to ACME’s debt. Annual interest on the debentures will accrue at a floating 5% premium over the prime rate.
General Environment Analysis The US Airlines Industry was going through a tough time during the period of 2004 - 2006. Major Airlines, such as United and Continental were trying to consolidate in order to survive. US net losses include $6.1 billion restructuring costs in 2006 [Exhibit 2, Source]. With several major airlines filing for bankruptcy, it was even more difficult for the regional airlines, which were primarily dependent on the major players for their existence. A more detailed environmental analysis is provided below: Economic Trends:  Net profit trend - Although the forecasts of the International Air Transport Association (IATA) seemed to be promising for 2007(collective profit of about $2.5 Billion), the situation till December 2006, seemed to be pretty bleak (Threat)  Seasonal Fluctuations - Another problem was the seasonal fluctuations in demand.
This decision was based on an analysis of relevance costs of the fabric at specific quantities based on 2.5 year historical sales volumes. Incremental costs include direct labor, and materials. As shown below in Table 1, for years 1988 – 1989, total revenue minus relevant costs (both incremental and avoidable costs) turns out to be more profitable at the $3.00 price point than at the higher price point because of the increased demand. If BTC decides to stay at the $4.00 per yard price point that they have been employing during the first two quarters of 1990 then their contribution margin will not be as high (see table 1). One interesting point is that the highest contribution margin for BTC will result when both BTC and Calhoun & Pritchard (C&P) raised the price to $4.00; this is still true even with the 20% erosion in demand due to the fabric not being available at $3.00 mentioned in the text book (see table 2).
They would take a large increase in stock value in the early weeks, then take a sudden dip back down to where their value began. I could tell where YeeeeeHaw.com had hit their maximum stock value and that is the point where I begun to sell my shares to maximize the profit. I initially did not view the companies profile page, but did so around game four. This better helped my game because I knew which were the stable companies and which had significant variation. Calls increase in value when the underlying security is going up, and they decrease in value when the underlying security declines in price.
5. Last year Aldrin Co. had negative net cash flow, yet its cash on the balance sheet increased. What could explain these events? a. Aldrin issued long-term debt. b. Aldrin repurchased some of its common stock.