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Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
For a particular firm, the purchasers of common stock require an 11%
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- Category Prior Year Current Year Accounts payable 3,147.00 5,976.00 Accounts receivable 6,925.00 8,910.00 Accruals 5,635.00 6,187.00 Additional paid in capital 19,527.00 13,950.00 Cash ??? ??? Common Stock 2,850 2,850 COGS 22,974.00 18,270.00 Current portion long-term debt 500 500 Depreciation expense 975.00 976.00 Interest expense 1,278.00 1,155.00 Inventories 3,048.00 6,717.00 Long-term debt 16,569.00 22,919.00 Net fixed assets 75,968.00 73,882.00 Notes payable 4,045.00 6,584.00 Operating expenses (excl. depr.) 19,950 20,000 Retained earnings 35,870.00 34,759.00 Sales 46,360 45,347.00 Taxes 350 920 What is the firm's cash flow from operations? What is the firm's dividend payment in the current year? What is the firm's net income in the current year?1. (Credit Creation) Understanding bank balance sheet is useful since it also helps our understanding of the process called "credit creation." This process shows that the Fed (central bank)'s policy of increasing the money supply is enhanced by banks' operations. Suppose an occurrence of the Fed's open market purchase proceed as follows: 1. The Fed decided to purchase $100 millions of securities from Bank A. 2. Bank A holds 10% of its increase in liquidity as required reserves, 40% as excess reserves, and use 50% as loans to Borrower A. 3. Borrower A holds 50% of her liquidity as currency and 50% as deposits in Bank B. 4. Bank B holds 10% of its increase in liquidity as required reserves, 40% as excess reserves, and use 50% as loans to Borrower B. 5. Borrower B holds 50% of her liquidity as currency and 50% as deposits in Bank C. 4. Finally, Bank C holds all of its increase in liquidity as reserves (required re- serves plus excess reserves). Hence the deposit creation process stops…Consider the following balance sheet Expected Balance Sheet for XYZ Bank Assets Yield Liabilities Cost Rate sensitive $ 1300 8% %$4 1700 8% Fixed rate $500 9% $1500 5% Non earning $ 5100 $. 1800 Equity 1900 Total $ 6900 $6900 What is the Net Interest Margin (NIM)
- ABC Manufacturing Company Balance Sheet as at 31 March 2019 2018 750 17,200 46,250 64,200 27,120 100,000 (32,200) 94.920 159,120 Cash 10,000 12,750 _31,200 53,950 22,500 71,250 (31.200) 62.550 116.500 Accounts receivable Inventory Total current assets Land Plant & equipment less accumulated depreciation Total fixed assets 11,500 18.250 29,750 33,700 53.050 Accounts payable Bank overdraft 24,000 49,500 Total current liabilities Term loan Sharcholders' funds 73,500 27,500 58,120 116,500 159.120 ABC Manufacturing Company Income Statement for the year ended 31 March 2018 Sales 2019 129,000 163,000 97.800 65,200 Cost of goods sold Gross profit Expenses: Administrative Operating Depreciation Total expenses Earnings before interest & tax _77.400 51,600 21,750 12,900 21,750 16,300 10.000 48,050 17,150 4,700 39.350 12,250 3,500 8,750 Interest 6,250 10,900 5,232 5.668 Earnings before taxes _4,200 4,550 Тах Net Income Required: a. Based on the financial statements for ABC Manufacturing, compute…Liabilities and Equity Current liabilities: Accrued wages and taxes Accounts payable Notes payable Total P 15 P 17 50 45 110 45 118 Long-term debt: Stockholders' equity: Preferred stock (5 million shares) Common stock and paid-in surplus (20 million shares) Retained earnings Total al liabilities and equity 190 195 40 155 200 40 192 237 P550 P500First National Bank Liabilities and Owners' Equity Deposits Debt Capital (owners' equity) Assets Reserves $1,200 $9,000 Loans 8,000 500 Short-term securities 800 500 Refer to the Table. This bank's leverage ratio is 20 50. 13.3. 7.5.
- Liabilities Liquid assets Monthly credit payments Monthly savings $ 8,800 $ 5,000 24668 $ 150 Net worth Current liabilities Take-home pay Gross income $ 59, 000 $ 1,350 $ 2,600 2,900 a. Debt ratio b. Current ratioCategory Prior Year Current Year Accounts payable 3,123.00 5,969.00 Accounts receivable 6,987.00 8,940.00 Accruals 5,642.00 6,108.00 Additional paid in capital 19,885.00 13,325.00 Cash ??? ??? Common Stock 2,850 2,850 COGS 22,986.00 18,120.00 Current portion long-term debt 500 500 Depreciation expense 1,035.00 988.00 Interest expense 1,290.00 1,167.00 Inventories 3,006.00 6,743.00 Long-term debt 16,856.00 22,001.00 Net fixed assets 75,521.00 74,000.00 Notes payable 4,072.00 6,540.00 Operating expenses (excl. depr.) 19,950 20,000 Retained earnings 35,244.00 34,874.00 Sales 46,360 45,055.00 Taxes 350 920 What is the firm's cash flow from financing?Question One Njenge Bank has the following balance sheet (in millions) with the risk weights in parentheses. Assets Cash OECD Interbank deposits (20%) K25 Liabilities and Equity Deposits Subordinated debt (2.5 years) (0%) K20 K175 K3 Mortgage loans K5 (50%) K70 Cumulative preferred stock Consumer loans Total Assets (100%) K70 K185 Equity Total Liabilities & Equity K2 K185 In addition, the bank has K30 million in performance-related standby letters of credit (SLCS), and K300 million in six-year interest rate swaps. Credit conversion factors follow: Performance-related standby LCs 1-5 year foreign exchange contracts 1-5 year interest rate swaps 5-10 year interest rate swaps 50% 5% 0.5% 1.5% Required a. What are the risk-adjusted on-balance-sheet assets of the bank as defined under the Basle Accord? b. What is the total capital required for both off- and on-balance-sheet assets? 1 c. Does the bank have enough capital to meet the Basle requirements? If not, what minimum Tier 1 or total…
- Waldo Lt Balance sheet £m £m Non Current Assets 180 Current Assets 75 Current Liabilities (25) 50 230 Financed by: Ordinary Shares (25p) 138 Reserves 32 8% Loan notes 60 230 The realisable value of the fixed assets is estimated at £135m and the realisable value of current assets is estimated at £45m. Recent profit after tax is £37m and a sector P/E ratio is 12. Using the information above, calculate the firm value per share using the realisable value method for the shares in Waldo Ltd. Group of answer choices £0.70 or 70p per share £0.14 or 14p per share £0.17 or 17p £0.31 or 31p per sharenet income 24KInterest expense 5,000Tax rate 25%Notes payable 27KLong-term debt 75K.Common equity 250K The firm finances with only debt and common equity, so it has no preferred stock. What are the firm’s ROE and ROIC? ROE = net income / common equityROIC (return on invested capital) = EBIT(1-Tax) / total invested capital ROE = 24,000 / 250,000ROE = .096 EBIT= sales revenue - operating costs Is my ROE right?I do not know how to find the EBIT with the information provided. Please help, thank you!Cash and cash equivalents 5,14 P 3,985,000 Receivables, net 6,14 7,742,000 Inventories 7 15,859,000 Short-term investments 8,14 3,280,000 Other current assets 10 352,000 Total current assets P 31,218,000 Note 8 on investments described the investments as equity securities held primarily for being traded to takeadvantage of price fluctuations in the market. The following information shows the breakdown of the investmentaccount per client's subsidiary records: Held for Trading Securities: Securities No. ofShares MarketPrice Amount SMCOrdinary 5,000 176 P 880,000 AC Ordinary 3,000 800 2,400,000 Total P 3,280,000 You were able to verify that the quantity and valuation of the shares as of December 31, 2019 were appropriate. Based on your substantive test of details of transactions and balances for the investment account you gatheredthe following information for 2020: SMC…