Question 2- Part A Slide 1 | | | | | | Shareholder Loans Scenario: Fred sole shareholder of Ink Corp. Fred has a daughter Nadia, 19 year old | | | | | | The purpose of this presentation is to focus solely on shareholder loans to family members who are not employees of the corporation. |
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(Required return for a preferred stock) Sony $4.50 preferred is selling for $65.50. The preferred dividend is non-growing. What is the required return on Sony preferred stock? PV Perpetuity = D / r r = D / PV r = $4.50 / $65.50 = 6.87% A15. (Stock valuation) Let’s say the Mill Due Corporation is expected to pay a dividend of $5.00 per year on its common stock forever into the future. It has no growth prospects whatsoever. If the required return on Mill Due’s common stock is 14%, what is a
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estimate as to what the new bondholders will require: rd = 5.81% Tax rate = income tax expense / E.B.T. = 1,260/4,089 = 30.81% After tax cost of debt = rd (1-T) = 5.81 (1-30.81%) = 4.02% 3. Cost of preferred stock: It was mentioned in the text that “Encana has no preferred shares outstanding”. So calculating this portion of WACC is not necessary. 4. Cost of Equity: Using the CAPM approach, the first thing to do is estimate the risk free rate. We can use the long term treasury
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for stock in such corporation and immediately after the exchange such person or persons are in control.” If we want to make qualified and successful transactions under Section 351 in order to make tax free transaction as it will not recognized and gain or loss, we will have to meet and satisfied the three lawful requirements to qualify non-recognition of gain or loss under Section 351. First, there have to be a property transfer. Second, there must be in exchange for common stock or preferred stock
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of $25,000 (based on a 50% inclusion rate). Mary received the following consideration in the transfer: Note payable to Mary $ 120,000 3,500 Class A preferred shares issued for $100 each, having a par value of $100, and retractable at $100 350,000 3,000 common shares issued for $10 each 30,000 $500,000 No Class A preferred or common shares were issued prior to the transfer and no other shares have been issued since. Mary comes to consult you on the tax consequences of the
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2. Herman Corporation had net income of $160,000 and paid dividends of $40,000 to common stockholders and $20,000 to preferred stockholders in 2007. Herman Corporation's common stockholders' equity at the beginning and end of 2007 was $450,000 and $550,000, respectively. Herman Corporation's payout ratio for 2007 is: A) $5 per share. B) 25%. C) 20%. D) 12.5%. Answer: B) 3. Moss County Bank agrees to lend the Sadowski Brick Company $200,000 on January 1. Sadowski Brick Company signs a
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Moving beyond valuation 4. VC negotiations 2 The Entrepreneur/VC Relationship Entrepreneur VC 3 The Entrepreneur/VC Relationship • Provisions to address adverse selection − due diligence − staging/milestones − use of convertible preferred shares • Provisions to facilitate monitoring/control − rights to information and board seat − employment contracts and termination rights • Provisions to enable harvesting • Protection of standing − anti-dilution provision − preemptive rights and
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1. Accounting The primary difference between accounting and finance is that accounting emphasizes _____ whereas finance emphasizes ___. Student Response Value Correct Answer Feedback 1. cash flows; profits 2. profits; cash flows 100% 3. profits; book value 4. book value; profits 5. book value; cash flows Score: 10/10 2. Corporation 2 The main advantage to a corporation is_______. Student Response Value Correct Answer Feedback 1. double taxation
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potential losses and provide greater capital buffers. ANZ’s hybrid issue comes amid volatile global market conditions which have caused Australian banks to refrain from raising wholesale debt. The demand for loans has fallen and debt has become less preferred due to risks of financial distress. Capital Structure & Hybrid Capital Trade-off’s Debt financing puts an obligation on a firm. A firm that fails to make the required interest or principle payments on the debt will enter into default. Financial
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stand-alone risk of project is higher but not correlated with the return of other assets of the company then it does not affect corporate risk. Of the three measures, market risk is theoretically most relevant because market risk has direct effect on stock prices and hence reflects the changes on economy as a whole. 9-2 LL Incorporated’s currently
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