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 s xxxxxx In x Editor xx Principles xx Accounting xxxxxxxxx from xxxx accounting xxxx edu xxxxxxxx c x b xxx The xxxxxxxx in xxx market xxxxxxxx rate xxx bonds xxxxxx similar xxxx as xxxxxxxxxx with xxxxxx Corporation x of xxxxx bonds xxxxxxxxx that xxx bond xxxxxx are xxxxxxxxx an xxxxxxxx in xxxxxxxxx Expectation xx an xxxxxxxx in xxxxxxxxx will xxxx the xxxx purchaser xxxx higher xxxxxxxx on xxxxxxxxxxx because xx expected xxxxxxxx in xxx inflation xxxx would xxxxx bond xxxxxxxx price xx lower xxxxxxxxxx power xxxx as xxx interest xxxxx have xxxxxxxxx while xxx company xxx locked xxx interest xxxxxxx at x rate xxxxx than xxx current xxxxxx interest xxxxx the xxxxxx for xxx company 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 x bond xxxx decline xxxx the xxxxxxxxx expected xxxx of xxxxxx on xxx now xxxxx valued xxxx Since xxx investors xxx expecting xxx inflation xxxx to xxxx issuance xx bond xx deemed xx be x better xxxxxx before xxxxxxx rise xx the xxxxxxxx rates xxxxx would xxxxxxxxx make xxx company 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 s xxxxxxxx cost xx - x e xxx the xxxxxxxxx term xx maturity xx the xxx bond xxxxx is xxxxx As xxx company xxx issued xxx bonds xx discounted xxxxx of xxx actual xxxxx of xxx bonds xx million xxxxxxxx the xxxx Value xx the xxxx to xx i x million xx the xxxxx amortization xxxxxx for xxx discount xx million xx be xxxx on x straight xxxx basis xxxx the xxxx of xxx bond xxxxx in xxxx case xx years xx the xxxxx amount xx discount xxxx the xxxxxxx has xxxxxxx amortized xx million xxxxxxx and xx has xxx to xxxxxxxx So xxx carrying xxxxx of xxx bond xx on xxxxxxx is- xxxxx of xxx bond xxxx the xxxxxx of xxxxxxxx yet xx be xxxxxxxxx i x - xx by xxxxxxx the xxxxx at xxx market xxxxx of xxxxxxx the xxxxxxx will xx booking xxxx of xxxxxxxxxx Rodney xxxxxxx amp xxxxxxx Klein xxxxxxxxx motives xx repurchase xx Discounted xxxxx Financial xxxxxxxxxx Retrieved xxxx http xxx jstor xxx discover xxx amp xxx amp xxx amp xxx amp xxx amp xxx amp xxx amp xxxMore Articles From Accounting
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