Edward Klar, senior accountant has established the following rules of thumb for estimating other relevant data: Costs
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Question:
Edward Klar, senior accountant has established the following rules of thumb for estimating other relevant data:
Costs | 30% of Sales |
Accounts Receivable | 30% of Sales |
Inventory | 25% of Sales |
Cash | 5% of Sales |
Accounts Payable | 20% of Sales |
The following is the balance sheet information:
Book Value | Coupon Rate | # of units | Maturity | |
Bonds | $10,000,000 | 6% | 10,000 | 10 yrs. |
Debentures | $20,000,000 | 9% | 20,000 | 10 yrs. |
Pref. Stock | $30,000,000 | 10% | 1,000,000 | |
Common Stock | $50,000,000 | - | 1,000,000 | |
Retained Earnings | $25,000,000 |
Advanced Practice Problem Continued
Assume that the current price of bonds is$1000 and the current price of the debentures is $1100. The price of preferred stock is $25and the price of common stock is $50. The annual expected dividend payment is $5 and it is expected to grow by 7% per annum in perpetuity. The tax rate is 45%. Which system would you take? Determine both the NPV and IRR.
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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