A Company Has The Following Capital Structure

A company has the following capital structure:1. Target weightings: 30% debt, 20% preferred stock,50%common equity2. Tax rate 30%3. The cost of debt 6. 5%4. Cost of preferred stock is 8%5. The company’s common stock have a value of $40 and a dividend of D0 = $3. The dividend is expected to grow at 6% forever. Calculate the weighted average cost of capital

Originally posted 2018-07-07 18:53:17. Republished by Blog Post Promoter

A Company Has The Following Capital Structure

Q1. 1. A company has the following capital structure at the beginning of the year: 4% Preferred stock, $50 par value, 20,000 shares authorized, 6,000 shares issued and outstanding $ 300,000 Common stock, $10 par value, 60,000 shares authorized, 40,000 shares issued and outstanding 400,000 Paid-in capital in excess of par 110,000 Total paid-in capital 810,000 Retained earnings 440,000 Total stockholders’ equity $1,250,000Using T-account format, prepare the entries to recognize the following transactions which occurred consecutively. a. A total cash dividend of $90,000 was declared and payable to stockholders of record. Record dividends payable on common and preferred stock in separate accounts. b. A 15% common stock dividend was declared. The average fair value of the common stock is $22 a share. c. Assume that net income for the year was $140,000 (record the closing entry) and the board of directors appropriated $70,000 of retained earnings for plant expansion. Q2. Equity transactions. Foley Corporation has the following capital structure at the beginning of the year: 6% Preferred stock, $50 par value, 20,000 shares authorized,6,000 shares issued and outstandingCommon stock, $10 par value, 60,000 shares authorized,40,000 shares isssued and outstandingPaid-in capital in excess of parTotal paid-in capitalInstructions(a) Record the following transactions which occurred consecutively (show all calculations). 1 A total cash dividend of $90,000 was declared and payable to stockholders of record. Record dividendspayable on common and preferred stock in separate accounts. 2 A 10% common stock dividend was declared. The average market value of the common stock is $18 a share3 Assume that net income for the year was $150,000 (record the closing entry) and the board of directorsappropriated $70,000 of retained earnings for plant expansion. (b) Construct the stockholders’ equity section incorporating all the above information.