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The O.K. Railroad needs to raise $9.5 million for capital improvements. One possibility is a new preferred stock issue - 8 percent dividend, $100 par value - stock that would yield 9 percent to investors. Flotation costs for an issue this size amount to 5 percent of the total amount of preferred stock sold. These costs are deducted from gross proceeds in determining the net proceeds to the company. (Ignore any tax considerations.)
a. At what price per share will the preferred stock be offered to investors? (Assume that the issue will never be called.)
b. How many shares must be issued to raise $9.5 million for the O.K. Railroad?
Discuss the risk of a long term verses a short term loan and visa versa. What is the risk to the lender and the borrower? During the current rate environment, what would make more sense for your company? Why? Support with text and outside research.
Angela is offered to buy a financial security that guarantees to pay $30 every 3 years. The annual interest rate is 9%. Calculate and explain in words all calculations for the following: (a) How much would Angela pay for it today if the first payment..
Barns Brother's capital structure is 100% equity and 0% debt. Currently there are 100,000 shares of common stock outstanding. Barns has decided to change its capital structure by buying back shares of common stock in a recapitalization effort. How mu..
Process the required reversing entries via the general journal - Post the journal entries to the appropriate ledger accounts and prepare a bank reconciliation as at 31st July 2014.
A business buys a vehicle for $6,000, uses it for 5 years, and salvages it for $1,000. The annual cost of operating the vehicle was $900. Maintenance costs are $200 for the first year and increase at a 8% annual compounded rate. The business uses an ..
The Quick Manufacturing Company, a large profitable corporation, is considering the replacement of a production machine tool. A new machine would cost $3700, have a 4- year useful and depreciable life, and have no salvage value. For tax purposes , su..
Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $8,700 and sell its old washer for $4,700. The new washer will last for 6 years and save $1,950 a year in expenses. The opportunity cost ..
Aviva Technology’s operating cycle is 93 days. Its inventory was $121,240 at the end of last year, and the company had a $1.0 million cost of goods sold. How long does it take Aviva to collect its receivables on average? (Round intermediate calculati..
A municipal bond with a coupon rate of 5.80 percent sells for $4,900 and has six years until maturity. What is the yield to maturity of the bond?
W.C. Cycling had $72,000 of cash at year-end 2011 and $18,000 in cash at year-end 2012. The firm invested in property, plant, and equipment totaling $290,000. what was the firm's net income?
Do you agree with King's belief that you need to create tension in order to have reform come about? Why or why not?
Midwest Electric Company (MEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 11% as long as it finances at its target capital structure, which calls for 45% debt and 55% common equity. These two project..
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