This topic contains a solution. Click here to go to the answer

Author Question: ________ is the value of the firm's ownership in the event that all assets are sold for their exact ... (Read 74 times)

captainjonesify

  • Hero Member
  • *****
  • Posts: 543
________ is the value of the firm's ownership in the event that all assets are sold for their exact accounting value and the proceeds remaining after paying all liabilities (including preferred stock) are divided among common stockholders.
 
  A) Liquidation value
  B) Book value
  C) The P/E multiple
  D) The present value of the common stock

Question 2

The MAX Corporation is planning a 4,000,000 expansion this year. The expansion can be financed by issuing
  either common stock or bonds.
 
  The new common stock can be sold for 60 per share. The bonds can be issued
  with a 12 percent coupon rate. The firm's existing shares of preferred stock pay dividends of 2.00 per share.
  The company's corporate income tax rate is 46 percent. The company's balance sheet prior to expansion is as
  follows:
  MAX Corporation
  Current Assets 2,000,000
  Fixed Assets 8,000,000
  Total Assets 10,000,000
  Current Liabilities 1,500,000
  Bonds:
  (8, 1,000 par value) 1,000,000
  (10, 1,000 par value) 4,000,000
  Preferred Stock:
  (100 par value) 500,000
  Common Stock:
  (2 par value) 700,000
  Retained Earnings 2,300,000
  Total Liabilities and Equity 10,000,000
  a. Calculate the indifference level of EBIT between the two plans.
  b. If EBIT is expected to be 3 million, which plan will result in higher EPS?



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

perkiness

  • Sr. Member
  • ****
  • Posts: 348
Answer to Question 1

B

Answer to Question 2

a.
EPS: Stock Plan EPS: Bond Plan
(EBIT-48,000)(1 - .46)-10,000
(350,000 + 66,667)
(EBIT - 960,000)(1 - .




captainjonesify

  • Member
  • Posts: 543
Reply 2 on: Jul 10, 2018
YES! Correct, THANKS for helping me on my review


kjohnson

  • Member
  • Posts: 330
Reply 3 on: Yesterday
Wow, this really help

 

Did you know?

Many medications that are used to treat infertility are injected subcutaneously. This is easy to do using the anterior abdomen as the site of injection but avoiding the area directly around the belly button.

Did you know?

ACTH levels are normally highest in the early morning (between 6 and 8 A.M.) and lowest in the evening (between 6 and 11 P.M.). Therefore, a doctor who suspects abnormal levels looks for low ACTH in the morning and high ACTH in the evening.

Did you know?

Multiple experimental evidences have confirmed that at the molecular level, cancer is caused by lesions in cellular DNA.

Did you know?

About 60% of newborn infants in the United States are jaundiced; that is, they look yellow. Kernicterus is a form of brain damage caused by excessive jaundice. When babies begin to be affected by excessive jaundice and begin to have brain damage, they become excessively lethargic.

Did you know?

According to research, pregnant women tend to eat more if carrying a baby boy. Male fetuses may secrete a chemical that stimulates their mothers to step up her energy intake.

For a complete list of videos, visit our video library