Question.3010 - Instructions Assume that Kelly Giard of Clean Air Lawn Care decides to launch a new retail chain to market electrical mowers. This chain, named Mow Green, requires $500,000 of start-up capital. Kelly contributes $375,000 of personal assets in return for 15,000 shares of common stock, but he must raise another $125,000 in cash. There are two alternative plans for raising the additional cash: Plan A is to sell 3,750 shares of common stock to one or more. investors for $125,000 cash. Plan B is to sell 1,250 shares of cumulative preferred stock to one or more investors for $125,000 cash (this preferred stock would have a $100 par value, an annual 8% dividend rate, and be issued at par). Required: If the new business is expected to earn $72,000 of after-tax net income in the first year, what rate of return on beginning equity will Kelly earn under each alternative plan? Which plan will provide the higher expected return? Required: Write a memo, in Word to Kelly detailing the information above. You will be graded on how well you address the questions. Addressing the questions involves identifying relevant facts, applying the chapter concepts,, and answering each question completely. Proper APA formatting is expected and required (cited sources, reference page, etc.). Supplement and synthesize your analysis with outsides scholarly sources. For assistance with APA citations, please visit the following links: The American Psychological Association Website: http://www.apastyle.org/ The APA site has numerous links (see “most popular”), but you may want to view the tutorial if you are completely new to APA: http://www.apastyle.org/learn/tutorials/basics-tutorial.aspxNote: This assignment will be submitted for plagiarism detection. You may not copy and paste any part of your submission, (not even from the text book) unless it is quoted and cited. Your submission must return less than20% similarity index in order to be graded. Instructions On January 1, 2009, Markin Corporation issued $2,400,000 of 5-year, 8% bonds at 95; the bonds pay interest semiannually on July 1 and January 1. By January 1, 2011, the market rate of interest for bonds of risk similar to those of Markin Corporation had risen. As a result the market value of these bonds was $2,000,000 on January 1, 2011—below their carrying value. Beth Markin, president of the company, suggests repurchasing all of these bonds in the open market at the $2,000,000 price. To do so the company will have to issue $2,000,000 (face value) of new 10-year, 11% bonds at par. The president asks you, as controller, "What is the feasibility of my proposed repurchase plan?" Required: Prepare a memo (at least 3 paragraphs) to the president in response to her request for advice. The memo should include; ? A discussion of the economic factors that you believe should be considered for her repurchase proposal. Comment on the relative increase/decrease in interest expense for Markin Corporation if a new bond issue is made. ? What is the carrying value of the outstanding Markin Corporation 5- year bonds on January 1, 2011? (Assume straight-line amortization.) You will be graded on how well you address the questions. Addressing the questions involves identifying relevant facts, applying the chapter concepts,, and answering each question completely. Proper APA formatting is expected and required (cited sources, reference page, etc.). Supplement and synthesize your analysis with outsides scholarly sources. For assistance with APA citations, please visit the following links: The American Psychological Association Website: http://www.apastyle.org/ The APA site has numerous links (see “most popular”), but you may want to view the tutorial if you are completely new to APA: http://www.apastyle.org/learn/tutorials/basics-tutorial.aspx Note: This assignment will be submitted for plagiarism detection. You may not copy and paste any part of your submission, (not even from the text book) unless it is quoted and cited. Your submission must return less than20% similarity index in order to be graded.
Answer Below:
Net xxxxxx after xxx of xx the xxxxx year xxxxx plan x sell xxxxxx of xxxxxx stock xx one xx more xxxxxxxxx for xxxx is xxxxx to xxx return xxxxxx by xxx business xx the xxxxxxx invested xxxxx the xxxxxxx structure xx Mow xxxxx is xxxxxxxx of xxxxxx of xxxxxx stock xxxxx equity xxxxxxx of xxx business xx Rate xx return xx equity xx calculated xx Annual xxx Income xxxxx tax xxx appropriations xxxxxx capital xx the xxxx of xxxxxx on xxx beginning xxxxxx under xxxx A xxxx be x e xxxxxxx under xxxx B xx the xxxxxxxxxx capital xx is xxxxxxx by xxxxxxx of xxxxxxxxxx preference xxxxxx hence xxx capital xxxxxxxxx is xxxxxxxx of xx equity xxxxxxx and xx preference xxxxx capital xxxxx return xx equity xx considered xx net xxxxxx after xxx and xxxxxxxxxxxxxx hence xxxxxx on xxxxxx of xxxx be xxx income xxxxx tax xx reduced xx the xxxxxx dividend xx on xxx preference xxxxxxx This xx because xxx preference xxxxxxxxxxxx are xxxx dividends xxxxxx any xxxxxxxxxxxx to xxx equity xxxxx holders xx net xxxxxx available xx the xxxxxx holders xxxxx appropriation xxxx be x of xx the xxxx of xxxxxx on xxx beginning xxxxxx under xxxx B xxxx be x e xx we xxx see xxxx plan x will xxxxxxx a xxxxxx rate xx return xx equity xxxxx Kelly xxxxxx opt xxx plan x and xxxxx the xxxxxxxxxx required xxxxxxx of xx issuance xx preference xxxxxx Moreover xx the xxxxxxxxxx share xx plan x is xxxxxxxxxx in xxxxxx if xxx business xxxxx to xxx any xxxxxxxx in xxx first xxxx or xxx year xxxxx dividends xxxxxx dividends xx arrears xxx are xxxx in xxxx to xxx preference xxxxx holders xxxxxx any xxxxxxxxxxxx to xxx equity xxxxxxx once xxx business xxxxxxx to xxx profits xxxxxxxxxxxxxxxxx S xxxxxxxxxxx rsquo x Equity xx E xxxxxx Ed xxxxxxxxxx of xxxxxxxxxx Retrieved xxxx http xxxxxxxxxx utep xxx sglandon x c x pdf xxxx The xxxxxxxx in xxx market xxxxxxxx rate xxx bonds xxxxxx similar xxxx as xxxxxxxxxx with xxxxxx Corporation xxxxx s xx -year xxxxx indicates xxxx the xxxx buyers xxx expecting xx increase xx inflation xxxxxxxxxxx of xx increase xx inflation xxxx make xxx bond xxxxxxxxx want xxxxxx interest xx investments xxxxxxx an xxxxxxxx increase xx the xxxxxxxxx rate xxxxx imply xxxx maturity xxxxx of xxxxx purchasing xxxxx Also xx the xxxxxxxx rates xxxx increased xxxxx the xxxxxxx has xxxxxx its xxxxxxxx payment xx a xxxx lower xxxx the xxxxxxx market xxxxxxxx rates xxx demand xxx the xxxxxxx rsquo x bonds xxxxx decline xx investors xxxxx prefer xx earn xxxxxxxx equivalent xx more xxxx the xxxxxxx market xxxxxxxx rate xxxxxxxxxxxx the xxxxxx for xxx company xxxxx s xxxx will xxxxxxx with xxx increased xxxxxxxx rate xx return xx the xxx lower xxxxxx bond xxxxx the xxxxxxxxx are xxxxxxxxx the xxxxxxxxx rate xx rise xxxxxxxx of xxxx is xxxxxx to xx a xxxxxx option xxxxxx further xxxx in xxx interest xxxxx which xxxxx otherwise xxxx the xxxxxxx rsquo x future xxxx of xxxxxxxxx higher xxxx the xxxxxxx repurchases xxx bonds xxxx the xxxx market xx will xxxx on xxx interests xxxx on xxx million xxxxx which xx million xxxxxxxxxxxxx i x annually xxx to xxxx the xxxxxxxxxx the xxxxxxx will xxxx to xxxxx new xxxxx bond xx face xxxxx million xxx at xx interest xxxx of xxxx the xxxxxxx will xxxx to xxx an xxxxxxxx of xx million x e xxxxxxxx Hence xxx repurchase xx the xxxx will xxxx to xx increase xx the xxxxxxx rsquo x interest xxxx of x i x for xxx remaining xxxx of xxxxxxxx of xxx old xxxx which xx years xx the xxxxxxx had xxxxxx the xxxxx at xxxxxxxxxx price xx the xxxxxx price xx the xxxxx is xxxxxxx assuming xxx Face xxxxx of xxx bond xx be x e xxxxxxx So xxx total xxxxxxxxxxxx amount xxx the xxxxxxxx is xxxxxxx to xx done xx a xxxxxxxx line xxxxx over xxx term xx the xxxx which xx this xxxx is xxxxx So xxx total xxxxxx of xxxxxxxx that xxx company xxx already xxxxxxxxx is xxxxxxx million xxx it xxx yet xx amortize xx the xxxxxxxx value xx the xxxx as xx January xxx price xx the xxxx less xxx amount xx discount xxx to xx amortized x e x So xx selling xxx bonds xx the xxxxxx value xx million xxx company xxxx be xxxxxxx loss xx REFERENCES xxxxxx Johnson xxx amp xxxxxxx Klein xxxxxxxxx motives xx repurchase xx Discounted xxxxx Financial xxxxxxxxxx Retrieved xxxx http xxx jstor xxx discover xxx amp xxx uid xxx amp xxx amp xxx uid xxx amp xxx amp xxx uid xxx amp xxx amp xxx sidMore Articles From Accounting
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