Medallion Cooling Systems, Inc., has total assets of $10,000,000, EBIT of $2,000,000, and preferred dividends of $200,000 and is taxed at a rate of 40%. In an effort to determine the optimal capital structure, the firm has assembled data on the cost of debt, the number of shares of common stock for various levels of indebtedness, and the overall required return on investment:,a. Calculate earnings per share for each level of indebtedness.,

b. Use Equation 13.12 and the earnings per share calculated in part a to calculate a price per share for each level of indebtedness.,

c. Choose the optimal capital structure. Justify your choice

Answers

Answer 1

Answer:

Answer:

Explanation:

The two attached pictures shows the explanation for this problem. I hope it help you. Thank you

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Described below are certain transactions of Edwardson Corporation. The company uses the periodic inventory system.1. On February 2, the corporation purchased goods from Martin Company for $70,000 subject to cash discount terms of 2/10, n/30. Purchases and accounts payable are recorded by the corporation at net amounts after cash discounts. The invoice was paid on February 26.2. On April 1, the corporation bought a truck for $50,000 from General Motors Company, paying $4,000 in cash and signing a one-year, 12% note for the balance of the purchase price.3. On May 1, the corporation borrowed $83,000 from Chicago National Bank by signing a $92,000 zero-interest-bearing note due one year from May 1.4. On August 1, the board of directors declared a $300,000 cash dividend that was payable on September 10 to stockholders of record on August 31.Make all the journal entries necessary to record the transactions above using appropriate dates.Edwardson Corporation

At the end of 2020, Aramis Company has accounts receivable of $800,000 and an allowance for doubtful accounts of $40,000. On January 16, 2021, Aramis Company determined that its receivable from Ramirez Company of $6,000 will not be collected, and management authorized its write-off.a) Prepare the journal entry for Aramis Company to write off the Ramirez receivableb) What is the net realizable value of Aramis Company's accounts receivable before the write off of the Ramirez receivable?

c) What is the net realizable value of Aramis Company's accounts receivable after the write off of the Ramirez receivable?

Answers

Answer:

Journal entry for write off the Ramirez receivable

Debit Allowance for doubtful Accounts $6,000

Credit Accounts receivables $6,000

Net realizable Receivables (beginning balance)

= accounts receivable of $800,000 Less allowance for doubtful accounts of $40,000

Net realizable receivable = $760,000

Net realizable Receivables (closing balance)

= accounts receivable of $800,000

Less adjustment for write off $6,000

Closing Accounts receivables balance $794,000

Less

Opening allowance for doubtful accounts of $40,000

Less debt write off $6,000

Closing allowance for doubtful account = $34,000

Closing Net realizable receivable = $760,000

Castles in the Sand generates a rate of return of 20% on its investments and maintains a plowback ratio of .30. Its earnings this year will be $5 per share. Investors expect a 12% rate of return on the stock.a. Find the price and P/E ratio of the firm.

b. Find the price and P/E ratio of the firm if the plowback ratio is reduced to 0.20.

Answers

Answer:

a. Earnings per share = $5

Expected dividend per share(D1) = 70% x $5 = $3.50

Current market price(Po) = D1/Ke - g

Current market price(Po) = $3.50/0.12-0.06

Po = $3.50/0.06

Po = $58.33

Growth rate(g) = b x r

= 0.3 x 0.2

= 0.06

Price-earnings(P/E) ratio = market price per share/Earnings per share

= 58.33/5

= 11.67

b. Earnings per share = $5

D1 = 80% x $5 = $4

Po = D1/Ke - g

Po = $4/0.12-0.04

Po = $50

g = b x r

g = 0.2 x 0.2

g = 0.04

P/E ratio = $50/$5

P/E ratio = 10

Explanation:

In this question, there is need to determine the growth rate, which is a function of return on investment and plowback ratio. Then, we will calculate the current market price as shown above. Finally, the current market price is divided by earnings per share in order to obtain the P/E ratio.

An investment of $1,000 produces a net cash inflow of $500 in the first year and $750 in the second year. What is the payback period? a.1.67 years b.0.50 year c.2.00 years d.1.20 years e.Cannot be determined.

Answers

Answer:

a. 1.67 years

Explanation:

The computation of the payback period is shown below:

In year 0 = $1,000

In year 1 = $500

In year 2 = $750

If we take the only year 1 cash inflow i.e $500

Now we deduct the $500 from the $1,000, so the amount would be $500

And, the next year cash inflow is $750

So, the payback period equal to

= 1 years + $500 ÷ $750

= 1.67 years

Megan Brink is offered the possibility of investing $6,651 today at 6% interest per year in a desire to accumulate $10,000. How many years must Brink wait to accumulate $10,000

Answers

Answer:

Megan Brink

Brink must wait 6 years to accumulate $10,000 with a present value investment of $6,651.

Explanation:

a) Data and Calculations:

Present value of investment = $6,651

Future value of the investment = $10,000

Interest rate per year = 6%

b) Using an online calculator:

You will need to invest 6.028 periods to reach the future value of $10,000.00.

FV (Future Value) $9,999.99

PV (Present Value) $6,651.00

N (Number of Periods) 6.028

I/Y (Interest Rate) 7.000%

PMT (Periodic Payment) $0.00

Starting Investment $6,651.00

Total Principal $6,651.00

Total Interest $3,348.99

ordan Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,200 containers follows. Unit-level materials $ 5,800 Unit-level labor 6,400 Unit-level overhead 3,900 Product-level costs* 9,600 Allocated facility-level costs 26,600 *One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Jordan for $2.80 each. Required Calculate the total relevant cost. Should Jordan continue to make the containers

Answers

Answer:

1. $19,300

2. Yes

Explanation:

1. The computation of relevant cost is shown below:-

= Unit-level materials + Unit-level labor + Unit-level overhead + Product level cost

= $5,800 + $6,400 + $3,900 + $3,200

= $19,300

Working note:-

Product level cost = $9,600 ÷ 3

= $3,200

2. Yes, Therefore Production is lower than buying cost, hence it is better to continue production.

Purchase price = 9,200 × $2.80

= $25,760

Johnson Company uses the allowance method to account for uncollectible accounts receivable. Bad debt expense is established as a percentage of credit sales. For 2013, net credit sales totaled $4,500,000, and the estimated bad debt percentage is 1.5%. The allowance for uncollectible accounts had a credit balance of $42,000 at the beginning of 2013 and $40,000, after adjusting entries, at the end of 2013.Required:1. What is bad debt expense for 2013?2. Determine the amount of accounts receivable written off during 2013.3. If the company uses the direct write-off method, what would bad debt expense be for 2013?