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The Private Company that I work its PREFERRED stockThe Private Company that I work for sells its PREFERRED stock to investors at $70. They give me an 100 options of common stock for $20, and they say that they have given me the equivalent of $5000 : ( $70-$20)x100I want to know if this is correct because preferred and comon stock cannot be valued the same...?
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LevRetired
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This is a finance questions. How does a PRIVATE company setsThis is a finance questions. How does a PRIVATE company sets a value for its preferred stock when it wants to sell it to investors so that this type of stock represents an equity in the company and at the same time pays a dividend at a certain rate.
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LaneJD, MBA, CFP, CRPS
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Background: we are thinking of forming an S-Corp to run a restaurant.Background: we are thinking of forming an S-Corp to run a restaurant. We are asking for $100K investments (cash) to start it. Per research, K-1 shows profit allocation and 1099-DIV shows distributions paid. We are considering paying dividends in the first few months to shareholders, $2,500 per quarter or $10,000 per year. Research indicates dividends are to be paid from accumulated retained earnings?Question: does this mean that any profit sharing payment in year 1 before income is transferred to retained earnings 12/31/2014 is not a dividend? Do we have to wait until 1/1/2015 to classify it as a dividend? That means no 1099-DIVs can be issued until year #2 2015?
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Problem 10.14
Briarcrest Condiments is a spice-making firm.Problem 10.14Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $2,456,035. have a life of five years, and would produce the cash flows shown in the following table.Year Cash Flow1 $583,272 2 -277,310 3 776,192 4 1,095,900 5 549,304 What is the NPV if the discount rate is 13.14 percent? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.) NPV is? $ Problem 11.20Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.00 million. This investment will consist of $2.40 million for land and $9.60 million for trucks and other equipment. The land, all trucks, and all other equipment is expected to be sold at the end of 10 years at a price of $5.21 million, $2.25 million above book value. The farm is expected to produce revenue of $2.09 million each year, and annual cash flow from operations equals $1.96 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 9 percent. Calculate the NPV of this investment. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)NPV $ The project should be acceptedrejected . Problem 11.24Bell Mountain Vineyards is considering updating its current manual accounting system with a high-end electronic system. While the new accounting system would save the company money, the cost of the system continues to decline. The Bell Mountain's opportunity cost of capital is 16.2 percent, and the costs and values of investments made at different times in the future are as follows:Year Cost Value of Future Savings (at time of purchase)0 $5,000 $7,000 1 4,400 7,000 2 3,800 7,000 3 3,200 7,000 4 2,600 7,000 5 2,000 7,000 Calculate the NPV of each choice. (Round answers to the nearest whole dollar, e.g. 5,275.)The NPV of each choice is:NPV0 = $NPV1 = $NPV2 = $NPV3 = $NPV4 = $NPV5 = $Suggest when should Bell Mountain buy the new accounting system?Bell Mountain should purchase the system in year 4year 1year 3year 5year 2. Problem 12.24Chip's Home Brew Whiskey management forecasts that if the firm sells each bottle of Snake-Bite for $20, then the demand for the product will be 15,000 bottles per year, whereas sales will be 86 percent as high if the price is raised 7 percent. Chip's variable cost per bottle is $10, and the total fixed cash cost for the year is $100,000. Depreciation and amortization charges are $20,000, and the firm has a 30 percent marginal tax rate. Management anticipates an increased working capital need of $3,000 for the year. What will be the effect of the price increase on the firm's FCF for the year? (Round answers to nearest whole dollar, e.g. 5,275.)At $20 per bottle the Chip's FCF is $ and at the new price Chip's FCF is $. Problem 13.11Capital Co. has a capital structure, based on current market values, that consists of 34 percent debt, 18 percent preferred stock, and 48 percent common stock. If the returns required by investors are 9 percent, 11 percent, and 16 percent for the debt, preferred stock, and common stock, respectively, what is Capital's after-tax WACC? Assume that the firm's marginal tax rate is 40 percent. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)After tax WACC = Problem 5.21Find the present value of $4,800 under each of the following rates and periods.(If you solve this problem with algebra round intermediate calculations to 6 decimal places, in all cases round your final answer to the nearest penny.)a. 8.9 percent compounded monthly for five years.Present value $ b. 6.6 percent compounded quarterly for eight years.Present value $ c. 4.3 percent compounded daily for four years.Present value $ d. 5.7 percent compounded continuously for three years.Present value $ Problem 6.19Trigen Corp. management will invest cash flows of $330,048, $599,048, $1,314,893, $818,400, $1,239,644, and $1,617,848 in research and development over the next six years. If the appropriate interest rate is 6.5 percent, what is the future value of these investment cash flows six years from today? (Round answer to 2 decimal places, e.g. 15.25.)Future value $
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PROJECTS
A B C D
INVESTMENT $30,000,000 $20,000,000 $25,000,000PROJECTS A B C D INVESTMENT $30,000,000 $20,000,000 $25,000,000 $25,000,000 EXPECTED RETURN 10.00% 14.00% 11.50% 16.00% The firms capital structure consists of: FMV CAPITAL PERCENTAGE AMOUNT DEBT 30% $15,000,000 PREFERRED STOCK 10% $5,000,000 COMMON STOCK 60% $30,000,000 $50,000,000 Other information about the firm: CORPORATE TAX RATE 30% DEBT CURRENT PRICE $1,050.00 ANNUAL INTEREST 6.00% CURRENT INTEREST PAID SEMIANNUALLY ORIGINAL MATURITY 25 YEARS, BUT NOW 20 YEARS LEFT MATURITY VALUE $1,000.00 FLOTATION COST INSIGNIFICANT MARKET YIELD PROJECTED: UP TO $20 MILLION 9% ABOVE $20 MILLION 12% 3 % additional premium PREFERRED CURRENT PRICE $45.00 LAST DIVIDEND (D0) $3.38 FIXED AT 7.5% OF PAR FLOTATION COST $1.50 NEXT DIVIDEND (D1) $3.38 COMMON CURRENT PRICE $35.00 LAST DIVIDEND (D0) $1.00 RETAINED EARNINGS $10,000,000 GROWTH RATE (g) 9% FLOTATION COST $1.50 NEXT DIVIDEND (D1) $1.090 NOTE - Once retained earnings is maxed out new common stock will need to be issued. Any preferred stock would be new preferred stock. You may want to review case in chapter 11. REQUIRED: In all of the required parts one part builds on the previous part. If you can't do a part use the set of other numbers to solve the next part. a. What is the current Kd, Kp and Ke assuming no new debt or stock? b. Since any new capital investment will require issuing new perferred stock, what would the the new returns be preferred stock (knp) and the new cost of capital? c. What amount of increase (marginal cost of capital) in capital structure will the firm run out of retained earnings and be forced to issue new common stock? d. If new common stock has to be issued what will the new return required be (Kne) and the new cost of capital? Note: All Answers Should Be Taken Out to 2 Decimal Places, Especially the Interest Rate Answers. Part a Current price 1,050 Maturity value 1,000 Interest payment Payment periods Yield rate six month rate Annual yield annual rate Kd Kp Ke Current Cost of capital Can't really use the current cost of capital since accepting any new projects will require issuing new Preferred stock requiring a rate higher than its current 7.5% yield. Part b Use your solutions in Part a to do this part, but if you couldn't complete Part a, assume Kd=4%, Kp=8%, and Ke=13%; = Knp preferred stock New cost of capital Part c If the capital structure increases more than new common stock will have to be issued to finance new projects since internally generated RE runs out, and the required return on common stock will increase as demanded by shareholders. Part d Kne common stock If you could not come up with the Kne common stock returns, do the cost of capital assuming Kd=5%, Knp=9%, and Ke=14%= New cost of capital
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(Write Details on how you got the answer for each question..I(Write Details on how you got the answer for each question..I need this within 1 hr. )1.(TCO G) Singal Inc. is preparing its cash budget. It expects to have sales of $30,000 in January, $35,000 in February, and $35,000 in March. If 20% of sales are for cash, 40% are credit sales paid in the month after the sale, and another 40% are credit sales paid 2 months after the sale, what are the expected cash receipts for March?a. $24,057b. $26,730c. $29,700d. $33,000e. $36,3002.(TCO G) Clayton Industries is planning its operations for next year, and Ronnie Clayton, the CEO, wants you to forecast the firm's additional funds needed (AFN). The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millions. Last year's sales = S0 $350 Last year's accounts payable $40 Sales growth rate = g 30% Last year's notes payable $50 Last year's total assets = A0* $500 Last year's accruals $30 Last year's profit margin = PM 5% Target payout ratio 60% a. $102.8 b. $108.2 c. $113.9 d. $119.9 e. $125.9 (Points : 30) 3. (TCO D) The Ackert Company's last dividend was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rs) is 12.0%. What is the best estimate of the current stock price?a. $37.05b. $38.16c. $39.30d. $40.48e. $41.704.(TCO H) The Dewey Corporation has the following data, in thousands. Assuming a 365-day year, what is the firm's cash conversion cycle?Annual sales = $4500 Annual cost of goods sold = $31,500 Inventory = $4,000 Accounts receivable = $2,000 Accounts payable = $2,400 a. 25 days b. 28 days c. 31 days d. 35 days e. 38 days (Points : 30) 5.(TCO C) Your company has been offered credit terms of 4/30, net 90 days. What will be the nominal annual percentage cost of its nonfree trade credit if it pays 120 days after the purchase? (Assume a 365-day year.)a. 16.05%b. 16.90%c. 17.74%d. 18.63%e. 19.56%6.(TCO C) Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its nonfree trade credit? (Assume a 365-day year.) a. 20.11% b. 21.17% c. 22.28% d. 23.45% e. 24.63% 7.Sapp Trucking's balance sheet shows a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt currently has a market value of $50 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $65 million. The current stock price is $22.50 per share; stockholders' required return, rs, is 14.00%; and the firm's tax rate is 40%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate. What is the difference between these two WACCs? a. 1.55% b. 1.72% c. 1.91% d. 2.13% e. 2.36% 8.(TCO B) Zhdanov Inc. forecasts that its free cash flow in the coming year, that is, at t = 1, will be -$10 million, but its FCF at t = 2 will be $20 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 14%, what is the firm's value of operations, in millions?a. $158b. $167c. $175d. $184e. $1939.(TCO G) Based on the corporate valuation model, the value of a company's operations is $1,200 million. The company's balance sheet shows $80 million in accounts receivable, $60 million in inventory, and $100 million in short-term investments that are unrelated to operations. The balance sheet also shows $90 million in accounts payable, $120 million in notes payable, $300 million in long-term debt, $50 million in preferred stock, $180 million in retained earnings, and $800 million in total common equity. If the company has 30 million shares of stock outstanding, what is the best estimate of the stock's price per share?a. $24.90b. $27.67c. $30.43d. $33.48e. $36.82
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I want to start a private corporation. I have a friend thatI want to start a private corporation. I have a friend that is willing toenter into a stock purchase agreement that states if I secure the State Contract I am bidding on he will purchase redeemable preferred stock for a price of 10.00 per share with a written agreement for my company to repurchase (buy back) the stock one year later for 20.00 per share. This would give me the start up capital I need to operate the company. My question is "will the difference between what I sell him the stock for 10.00 a share and the repurchase price of 20.00 dollars per share be tax deducible like interest would be on a loan? He says that the IRS will want to tax all of my retained earning prior to purchasing the stock and that the difference in the purchase and buy back price is not a deduction for the company
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