Reference no: EM132671273
Reuth Corporation plans to raise $2 million to pay off its existing short-term bank loan of $600,000 and to increase total assets by $1,400,000. The bank loan bears an interest rate of 10 percent. The company's president owns 51.5% percent of the 4,000,000 shares of common stock and wishes to maintain control of the company. The company's tax rate is 20 percent. Balance sheet information is shown below.
The company is considering two alternatives to raise the $2 million: (1) sell common stock at $10 per share, or (2) Sell bonds at a 10 percent coupon, each $1,000 bond carrying 50 warrants to buy common stock at $15 per share.
Current Balance Sheet Current Liabilities$900,000Common Stock, Par $0.25 1,000,000 Retained earnings700,000Total Assets$2,600,000Total claims$2,600,000Alternative 1: Common stock$10FACTSAlternative 1: Common stock# new shares 200,000 Tax rate 20%# new sharesPar value per share$0.25New financing$2,000,000Par value per shareExisting Loan$600,000Alternative 2: Debentures Interest rate10%Alternative 2: DebenturesExercise price per warrant$15Interest amount - old$60,000Exercise price per warrant# bonds to raise new capital 2,000 Interest amount - new$200,000# bonds to raise 2M# new shares 100,000 # new shareswarrants per bond 50 President owns51.5%warrants per bondNew money raised 1,500,000 Shares outstanding4,000,000New money raisedAddition to par 25,000 Addition to parAdditional paid-in capital 1,475,000 Additional paid-in capital
a. Show the new balance sheet under both alternatives. For Alternatives 2, show the balance sheet after exercise of the warrants.
b. Calculate the president's ownership position for both alternatives. He doesn't buy any of the additional shares.
c. Calculate earnings per share for both alternatives, assuming that EBIT is 11% of total assets.
d. Calculate the debt ratio under both alternatives
e. Which alternative do you recommend and why?
|
Compute Ashley net tax payable or refund
: Ashley Panda lives at 1310 Meadow Lane, Wayne, OH 43466, and her Social Security number is 123-45-6777. Compute Ashley net tax payable or refund
|
|
What are the common coding and classification systems
: What are the common coding and classification systems that could be used in the workplace to systematically code, classify and check data for accuracy
|
|
Description of strengths and challenges associated
: Description of strengths and challenges associated with title protection and licensure. Describe two strengths and two challenges.
|
|
Explain the various functions involved in transaction cycle
: Explain the various functions involved in "Transaction Cycle" with suitable examples. Discuss methods of setting premium rates in insurance companies
|
|
Calculate the president ownership position
: Reuth Corporation plans to raise $2 million to pay off its existing short-term bank loan of $600,000 and to increase total assets by $1,400,000.
|
|
What is maximum depreciation including bonus depreciation
: What is the maximum depreciation, including bonus depreciation, in 2018 for a used automobile driven 100% for business that was acquired on July 2, 2018
|
|
Estimate the value per share of transpacific stock
: Summer Gompers is valuing Transpacific Corporation. Summer has made the following assumptions: Book value per share is estimated at $10.50
|
|
What are the relevant factors in the situation
: What are the relevant factors in this situation and how you should handle this, and what you would recommend to the Controller?
|
|
Applying consequentialist or deontological moral reasoning
: Compare Watson and Arneson's arguments. Are they consistently applying consequentialist or deontological moral reasoning?
|