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Abe Forrester and three of his friends from college have interested a group of venture capitalists in backing their business idea.
The proposed operation would consist of a series of retail outlets to distribute and service a full line of vacuum cleaners and accessories. These stores would be located in Dallas, Houston, and San Antonio. To finance the new venture two plans have bee proposed:
Plan A is an all-common-equity structure in which $2.4 million dollars would be raised by selling 80,000 shares of common stock.Plan B would involve issuing $1.2 million in long-term bonds with an effective interest rate of 11.9 percent plus another $1.2 million would be raised by selling 40,000 shares of common stock. The debt funds raised under plan B have no fixed maturity date, in that this amount of financial leverage is considered a permanent part of the firm's capital structure.
Abe and his partners plan to use a 38% tax rate in their analysis, and they have hired you on a consulting basis to do the following:
A. Find the EBIT indifference level associated with the two financing plans.
B. Prepare a pro forma income statement for the EBIT level solved for in part a that shows that EPS will be the same regardless whether plan A or B is chosen.
Describe how selling to customers on credit affects the operating cycle.
Barry's Steroids Company has $1000 par value bonds outstanding at 12 percent interest .The bonds will mature in 50 years. Compute the current price of the bonds if the percent yield to maturity is:
Determine the maximum price you would pay for a share of common stock in Roscovis if you have the following investment constraints: Maximum Price/Earnings Ratio 15X Maximum Multiple of Book Value 3X
williams companys direct labor cost is 25 of its conversion cost. if the manufacturing overhead for the last period was
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Journalize the entries to record
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Merchandise subject to terms 1/10, n/30, FOB shipping point,is sold on account to a customer for $18,000. The seller issued acredit memorandum for $4,000 prior to payment. What is the amount of the cash discount allowable?
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