Preferred Stocks

Preferred Stocks
Background
Hearts 'R Us ("Hearts"), a young private research and development medical device company, sold
$3.5 million of its Series A Preferred Shares on November 30, 2011 to Bionic Body ("Bionic"). This
transaction gave the company enough financing for their heart valve system which they hope will
revolutionize the way heart valve defects are repaired. In order to make this product available for
sale they need a final approval by the FDA. The shares sold to Bionic have a par value of $1 per
share and the purchase has given Bionic the following five rights:
Board rights
Mandatory Conversion Right
Contingent Redemption Right
Additional Protective Rights
Right of First Refusal and Co–Sale Rights
After Year 4, Hearts is still in ... Show more content on Helpwriting.net ...
In Thornton's guidance, he provides a series of tests that Hearts can use to decide how to treat the
preferred shares. The figure below belongs to Thornton's article.
1. Are the Preferred Shares redeemable?
Yes
2.Does the redemption feature provide a debt–like return?
No
Although Preferred Stock purchase agreement includes a contingent redemption right, it
immediately fails the debt–like feature test. Bionic did not lend money to Hearts, and Hearts does
not incur interest expense. Also, Conceptual Framework 6 suggests "preferred stock also often has
both debt and equity characteristics, and some preferred stocks may effectively have maturity
amount and dates at which they must be redeemed for cash." This quote indicates that it is to the
accountant's best judgement.
By following the the Thornton's series of tests and the codification, Team 6 recommends Alternative
A(1), classify the preferred shares in the equity section of the balance sheet.
Alternative A(2) According to the same ASC 25–16, Hearts could classify it in the debt section
because 25–16 states that classifying preferred stock as a debt instrument is more common. For
example, one characteristic of the preferred share is Bionic's Rights. The board, mandatory
conversion, contingent redemption, and other rights could qualify a characteristic of a liability, "The

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Airjet Best Parts Inc Part 1
Kim Witten
Course Project Part I
Task 1
1.
National First (Prime rate is 3.25%) +6.75% = 10% Semiannually
EAR = (1+.10/2) ^2 – 1 which is 10.25
Regions Best Rate is 13.17% Monthly
EAR = (1+.1317/12) ^12 – 1 which is 13.99
2.
I think that between National First and Regions Best that National first offers the lower rate after
computing the EAR. National first is also only compounded semiannually making it lower then
Regions Best. The only thing I worry about it the prime rate changing because if it rises a lot then it
could possibly become a higher interest rate them Regions best. At the time being if Air jets Best
Inc. takes the National First option then that is 3.74 percent less they would be paying if they had
gone with ... Show more content on Helpwriting.net ...
Credit risk of bonds has a possibility that the bond issuer will default on the bond. The risk that the
bond issuer will default on the bond will mean that the investor's actual yield will be lower. Other
factors that can contribute to the riskiness of bonds are inflation rates and the financial health of the
bond issuer.
4.
Some positive covenants AirJet could use in future bond issues is maintain a minimum level of net
working capital, maintain any and all collateral or security related to the bond indenture as well as
all facilities in good working condition. They also must file quarterly audited financial statements
and make sure bondholders have access to this information. They must maintain a certain level of
debt coverage ratio as well as allow for redemption in the event of a merger or sale.
Some negative covenants that AirJet can have in their future bond issues could be debt limitation,
limitation on liens or mergers, consolidations or sales, dividend limitation, or limitations on asset
disposal. They cannot pay unusually high dividends and must limit those dividends to a certain
amount, they cannot lease or sell off major assets without the approval of the lender, they cannot
issue additional debt and they cannot pledge any assets to

Accouting212 Essay
DeVry ACCT 212 Week 8 FINAL EXAM
1. (TCO 3) At the end of the period it is necessary to close all temporary accounts. (1) Explain why
this process is required (15 points) and (2) provide an example of the closing of an expense account,
Salary Expense in the form of a journal entry.
2. (TCO 2) As required to complete Course Project 1, one must follow the cycle that includes 10
steps to complete the accounting cycle. (1) Explain how information from the journal entries get
into the ledger accounts (15 points) and (2) provide an example of information that would be
transferred. (10 points)(Points : 25)
3. (TCO 5) Internal Control Procedures are required to safeguard company assets and to ensure
ethical operation ... Show more content on Helpwriting.net ...
Straight–line method. b. Double–declining balance method. c. Units of Production method. (For
units–of–production and double–declining balance, round to the nearest two decimals after each
step of the calculation.) 2. Which method best tracks the wear and tear on the van? 3. Which
method would BagODonuts prefer to use for income tax purposes? Explain in detail why
BagODonuts prefers this method. (Points : 25)
2. 3. (TCO 7) ABC Inc. was incorporated on 1/15/12. Their corporate charter authorized the
following capital stock: Preferred Stock: 7%, par value $100 per share, 100,000 shares. Common
Stock: $1 par value, 500,000 shares. The following transactions occurred during the year:
1/19/12 – Issued 100,000 shares of common stock for $17 cash per share. 1/31/12 – Issued 3,000
shares of preferred stock for $115 cash per share. 11/1/12 – Repurchased 30,000 shares of common
stock for $22 cash per share. 12/1/12 – Declared and paid a total dividend of $95,000. Required:
1. Prepare the journal entry for each transaction listed above. 2. In your own words, explain the
main differences between common and preferred stock. (Points : 25)
4. (TCO 2) Below are the accounts of Super Pool Service, Inc. The accounts have normal balances
on June 30, 2012. The accounts are listed in no particular order.
Account Balance Common

Essay about Trends In Australian Bank Capital
LETTER OF TRANSMITTAL
This report's topic is Trends in Australian Bank Capital. The content is as following:
1. The explanation of why "Regulators usually want more equity capital whereas shareholders
usually favour less equity capital"
2. The differences between bank equity capital and bank regulatory capital
3. A discussion of the functions of bank capital and the role of the risk–return trade–off
4. The differences between tier 1 and tier 2 capital
5. The components of tier 1 and tier 2 capital and the cost and risk implications of them
6. Details of the trends in the four major Australian banks for the last five years.
1.
In Hogan et al (2004) Page 249 states that ¡§from the shareholders¡¦ point of view, the appropriate ...
Show more content on Helpwriting.net ...
These requirements define what is acceptable as capital and provide for standard methods of
measuring the risks incurred by the Bank. APRA has set minimum ratios that compare the
regulatory capital with risk weighted on and off balance sheet assets. The minimum risk–weighted
capital ratio is 8%. The following formula is used to calculate the risk–weighted capital ratio:
Risk–weighted capital ratio = Qualifying capital . Total risk–weighted assets
The numerator of the ratio is qualifying capital, which includes Tier 1 capital such as paid–up
ordinary shares and retained profits, and Tier 2 capital such as term subordinated debt after making
required deductions for items such as goodwill and equity holdings in other banks.
Equity capital is a permanent commitment of funds which earns the residual income of the firm after
all interest and other costs have been paid. In Orgler/ Wolkowitz Bank Capital 1976, bank equity
capital represents ¡§all claims on the bank¡¦s profits, and in the Report of Condition it is divided into
several accounts that include preferred stock, common stock, surplus, undivided profits, and
reserves for contingencies and other capital reserves¡¨. Whereas regulatory bank capital is bank
funding which qualifies as bank regulatory capital under the

A Summary On Private Equity Essay
Private Equity Weiwei Zhu FleetCor Deal Summary: As a Managing Director at Summit Partners, I
have received an investment proposal of FleetCor deal from the deal team–– To invest 44.9 million
in FleetCor for an ownership position of 46%, in the form of convertible preferred stock with an 8%
accruing yield. This memo includes all my concerns for this deal. Good Business Framework:
Market Position: Strong FleetCor is one of the largest issuers of commercial fleet fuel "purchase
cards" in the US. Targeting the middle market, it's positioned to achieve leading market share, as
most competitors focus on upper–end market. Also, FleetCor has advantage of local market
distribution. Competitors do not have such cost structure or infrastructure to support an entry into
the middle market. Thus, compared to current and potential competitors, FleetCor can be a leader in
this market segment. Market Growth & market share trends: Very Positive The total market size for
commercial FleetCards is 2 billion. And according to Bain market sizing studies, the market of
FleetCor can be $500 million, big enough for potential IPO. The market expansion and growth are
strong, even stronger with consideration to related services such as roadside assistance. Especially
the middle market had undervalued penetration. Card penetration in the upper–end market is 75%,
while only 25% in the middle market, which indicates a huge space for expansion and growth. Thus,
FeetCor is very likely to

Essay on Hearts R Us Preferred Stock Classification Solution
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HEARTS R US PREFERRED STOCK CLASSIFICATION
SOLUTION
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STOCK

Loan Of Bonds And Preferred Stocks Are Considered...
Q2: Owners of bonds and preferred stocks are considered primarily creditors of a business.
However, in some instances they also have the capability of becoming corporate owners.
a.) Converting debt to stock equity
Convertible debt is a form of security, which in most cases issued to start–ups at the time of raising
capital. The seed investor is given a promissory note that contains a conversion feature (Kimmel &
Weygandt 2007). The conversion feature contains a mechanism in which the debt can be converted
into equity at a later date. There are several instances when the debt issued to a company by an
investor can be converted into equity. Some of them include;
Qualified financing– most of the promissory notes issued to a startup investor ... Show more content
on Helpwriting.net ...
These triggers can be an event or a set of events, a revenue threshold, a business milestone or any
other financing threshold. Mostly a financing event is the most preferred one.
b.) Differences between preferred stock and bonds.
A preferred stock is a form of special equity ownership. They are commonly considered a form of
investment that occurs somewhere between common shares and bonds. Bonds, on the other hand,
are a form of the debt issue. Despite the two having numerous similarities, preferred stock has a
tendency to be riskier than bonds, but they attract higher yields (Kimmel & Weygandt 2007). In an
instance a company has gone bankrupt bonds take preference over preferred stock when receiving
payments from liquidation process. To protect from market anxiety that come with bonds and
preferred stock it is advisable that they invest in convertible securities. Convertible securities can
provide income like a bond, have potential for growth based on the conversion option. Investing in
such is a sure way that an investor will not lose their investments in a volatile risk.
c.) Advantages of Tax exempt bonds to both issuer and holder
Tax–exempt bonds offer great advantages to both the bond issuer and bondholder.
For the bondholder:
Keep most of interest income – the main advantage of tax–exempt bonds is that the investor gets to
keep most the returns due to the exemption. The fact is that one does not have to pay tax on the
interest income (Melville, 2013).
Low

Case 13 Hearts
Whitney Steele
Case 13–03
Hearts 'R Us Preferred Stock Classification
2/16/2015
To: Hearts 'R Us
From: 5110 Whitney Steele
Re: Preferred Stock Classification
Date: February 16, 2015
Background Hearts 'R Us (the Company) is an early stage, non–public research and development
medical device company. They are in the final stages of going to market with the Heart Valve
System. Bionic Body (Bionic), a SEC registrant, could benefit from the approval of the Hear Valve
System and will help finance. Hearts sold Bionic $3.5 million of Series A Preferred Shares (Shares)
of the Company with a par value of $1 per Share. The transaction was completed on November 30,
2011. As part of the stock purchase agreement, Bionic has the following rights: ... Show more
content on Helpwriting.net ...
ASC 480–10–15–3 Distinguishing Liabilities from Equity applies because the preferred shares has
"characteristics of both a liability and equity and, in some circumstances, also has characteristics of
an asset (for example, a forward contract to purchase the issuer's equity shares that is to be net cash
settled)." Also ASC 480–10–25–4 states "mandatorily redeemable financial instrument shall be
classified as a liability unless the redemption is required to occur only upon the liquidation or
termination of the reporting entity." The Shares are not considered mandatorily redeemable at
issuance according to ASC 480–10–25–7, "If a financial instrument will be redeemed only upon the
occurrence of a conditional event, redemption of that instrument is conditional and, therefore, the
instrument does not meet the definition of mandatorily redeemable financial instrument in this
Subtopic." The Shares will be redeemed only upon the occurance of the Contingent Redemption
Rights, so the Shares again are not considered mandatorily redeemable financial instruments
meaning it is not classified as a liability. Since it is not certain that the Company will not receive
FDA approval at issuance, the preferred stock can be considered equity. If by the fifth year the FDA
does not approve the product, the Company will have to reclassify the Shares from equity to a
liability. This is shown according to the second

Pre-Paid Legal Services
9–100–037 REV: JULY 2, 2003 PAUL HEALY Pre–Paid Legal Services, Inc. Pre–Paid Legal plans
are designed to help middle–income Americans have affordable access to quality legal assistance. –
Pre–Paid Legal Services Corporate Vision Harland C. Stonecipher founded the Pre–Paid Legal
Services, Inc. (PPLS) in 1972 after an expensive encounter with lawyers stemming from an
automobile accident. PPLS sold legal expense insurance that provided for partial payment of legal
fees in connection with the defense of certain civil and criminal actions. The company went public
in 1979 and grew rapidly throughout the 1980s as an increasing number of Americans subscribed to
legal service insurance (see Exhibit 1). In 1998 the company had membership ... Show more content
Premiums were typically paid on a monthly basis either by automatic charges to the member's credit
card or through employee payroll deductions. The premiums were generally guaranteed renewable
and noncancelable except for fraud, nonpayment of premiums, or upon written request by a
member. The annual membership persistency rate in 1998 was high; approximately 75% of
members at the beginning of the year and new members during the year continued to be enrolled in
the program at the end of the year. At March 31 1999, PPLS had 648,475 active members, and
membership had been increasing at about 40% per year. PPLS marketed its memberships through a
multi–level program that encouraged buyers to become salespeople. Members that sought to
become sales associates paid the company a fee, typically $65, to cover the cost of training
materials, training meetings, and home office support services. Registered sales associates sold the
company's services to their friends and business associates. The most successful even recruited and
developed their own sales force. In 1998 PPLS generated 76% of its annual sales from the roughly
150,000 members registered as sales associates. The remaining 24% of sales were generated through
arrangements with insurance and service companies with established sales forces, such as CNA and
Primerica Financial Services. Sales associates were compensated on a commission basis (see
Exhibit 3). Prior to 1995, associates that signed–up a new

Borders Hotel Corp. Case
MIS 49F
ASSIGNMENT 2
BORDERS HOTEL CORP. CASE
SOLVED BY
Özgür İlker AĞIRMAN
Özlem ÖNCÜ
2012
TABLE OF CONTENT
BORDERS HOTEL CORP. 3 THE BHC PROJECT 3 Financing Alternatives: 3 FINANCIAL
STATEMENTS 4 Balance Sheet 4 Earning Before Interest and Tax 5 Impact of Financing Options
on Earnings 6 Balance Sheet – Year 1 7 EVALUATION OF ALTERNATIVES 8 Alternative 1 : 20–
year mortgage 8 Alternative 2 : Common Stock Issue 8 Alternative 3 : Common Stock and Preferred
Stock Issue 8 ALTERNATIVES FOR DANIELS'S INTEREST 9
BORDERS HOTEL CORP.
Karen Daniels , president of Borders Hotel Corporation (BHC) , has to investigate three financing
alternatives in order to evaluate their impacts on viability of the BHC ... Show more content on
Helpwriting.net ...
* Legal and other expenses were expected to be $125,000. 3. Preferred and common stock * Each
unit consists of 3,000 preferred shares and 2,500 common shares. * The units would sell for
$100,000. * Legal and other costs would be $125,000.
FINANCIAL STATEMENTS
Balance Sheet
Earning Before Interest and Tax
Impact of Financing Options on Earnings

Balance Sheet – Year 1
EVALUATION OF ALTERNATIVES
Alternative 1 : 20–year mortgage
Because of the fact that BHC is a new venture ; the risk is actually high. Mortgage rate appears to
compensate for the risk.When BHC had acquired $2,275,000 with a mortgage.
When we look at the interest coverage between 75 percent occupancy and 50 percent occupancy of
mortgage financing, it is possible to say that at 50% earnings do not cover the interest costs. Cash
flows from operations (Earning before interest and tax plus depreciation) do not cover costs and
principal repayments.
= = $1,982
In addition ; Break–even revenue with mortgage financing. If the breakeven sales were achieved,
depreciation of $320,000 will not require a cash outflow and will cover the principal repayment of
$180 , $160 for the furnishings and $49,000 for the mortgage in the first year.
Alternative 2 : Common Stock Issue
When we look at 75% occupancy, the rate of return (net earnings divided by amount invested) is
$298,000/$3,525,000 = 8.4%. . This return should be regarded as low; as the

Review Questions for Microeconomic Concepts
CHAPTER 6
Review Questions:
6–2 What is the term structure of interest rates, and how is it related to the yield curve?
Term structure interest rate is a rate which relates the interest rate or rate of return to the time to
maturity.
The yield curve is a graph of relationship between the debt's remaining time to maturity and its yield
to maturity. Term structure of interest rate can be shown graphically by yield curve. The shape of the
yield curve will show the useful ways to future interest rate expectation.
6–3 For a given class of similar–risk securities, what does each of the following yield curves reflect
about interest rates: (a) downward–slopping; (b) upward–slopping; and (c) flat? Which form has
been historical dominant?
For a given class of similar–risk securities, A downward yield curve shows cheaper long–term
borrowing lists than the short–term borrowing lists (inverted yield curve). Upward yield curves
represent cheaper short–term borrowing lists than the long–term borrowing lists (normal yield
curve). The flat one shows similar borrowing costs for both short–term and long–term loans.
6–4 Briefly describe the following theories of general shape of the yield curve: (a) expectation
theory; (b) liquidity preference theory; and (c) market segmentation theory. Expectation theory
implies that the yield curve reflects investors' expectation about the future interest rate and inflation.
Higher the future inflation rate, higher the long–term

Silicon Valley Medical Technologies
COST OF CAPITAL
Directed
Silicon Valley Medical Technologies – SIVMED was found in San Jose, CA, in 1982 by Kelly's
O'Brien, David Roberts, and Barbara Smalley. O'Brien and Roberts, both MDs, were on the research
faculty at the UCLA Medical School at the time; O'Brien specialized in biochemistry and molecular
biology, and Roberts specialized in immunology and medical microbiology. Smalley, who has a
PhD, served as department chair of the Microbiology Department at UC–Berkeley.
The company started as a research and development firm, which performed its own basic research,
obtained patents on promising technologies, and then either sold or licensed the technologies to
other firms which marketed the products. In recent years, ... Show more content on Helpwriting.net
...
Recently, however, competition has become stiffer and such large biotechnology firms as
Genentech, Amgen, and even Bristol–Myers Squibb have begun to recognize the opportunities in
SIVMED's research lines. Because of this increasing competition, SIVMED's founders and board of
directors have concluded that the firm must apply state–of–the–art techniques in its managerial
processes as well as in its technological processes. As a first step, the board directed the financial
vice president, Gary Hayes, to develop an estimate for firm's cost of capital and to use this number
in capital budgeting decisions. Haves, in turn, directed SIVMED's treasurer, Julie Owens, to have
cost of capital estimate on his desk in one week. Owens has an accounting background, and her
primary task since taking over as treasurer has been to deal with the banks. Thus, she is somewhat
apprehensive about this new assignment, especially since one of the board members is a well–
known Northwestern University finance professor.
TABLE 1
SIVMED, Inc. Balance Sheet for the year ended Dec 31, 1999
(in millions of dollars)
Cash and marketable securities $ 7.6 Account Payable $ 5.7
Account Receivable 39.6 Accruals 7.5
Inventory

Essay about Financial Analysis of Anz and Nab
|–– |
|[Financial Analysis of ANZ and NAB |
| Group Assignment |
| |
| |
| |
| ... Show more content on Helpwriting.net ...
However, a lower P/E ratio can also be generated with one–off abnormal earnings (Phan, 2011).
In 2008, share prices dropped mainly due to the US sub–prime crisis, which started in 2007 (Lixi,
2008). This had a huge impact on the P/E ratio for 2008, which is slightly below the threshold of 10
times. The P/E ratio for ANZ was higher than NAB in 2009 and there was lesser fluctuation in ratio.
Share prices tend to rise with improved economic conditions, and with stimulus packages being
distributed all over the world, there was uplift in the global economy, hence driving share prices
(Larsen, 2012). However, falling earnings over 2009 caused both P/E ratios to rise. NAB's P/E ratio
increased a significant amount and overtook ANZ's. Over the 5 years, NAB's P/E ratio fluctuation is
observed to be consistently higher than ANZ's. Moreover, NAB's higher P/E ratio might be due to
investors' high expectations, which were not supported by earnings.
The P/E ratios returned to a more normal course in 2010 due to improved earnings (See Appendices
1). In 2011, earnings were higher than in 2010 but the drop in market share price caused P/E ratio to
decrease again. This drop might be linked to concerns over the uncertainties around sovereign debt
in Europe.
2) Return on Equity (ROE)
According to Forbes,

Case 23
23
Evaluating Project Risk
It's Better to Be Safe Than Sorry!
"It's amazing how much difference there is in the way proposals are presented at two different
firms," said John Woods to his assistant, Pete Madsen, as he pointed to the stack of capital
investment proposals piled on his desk. "We sure have our work cut out for us, Pete. I need you to
collect some data for me as soon as possible. "
John Woods, had recently been hired as the Assistant Vice President of Finance of Mid–West Home
Products. His past experience included a seven–year stint with another large consumer products
firm. His career had been very successful, thus far, as he had gone from being a financial analyst to
an Assistant Vice–President of Finance in a little ... Show more content on Helpwriting.net ...
5% 3 Years $ 82,927.84
Table 2 Market Data Regarding Outstanding Securities
Type Par Value Current Price Number Outstanding
10%, 20–Year Bonds $1,000 $900 10,000
6% Preferred Stock $10 $12 500,000
Common Stock $1 $25 1,000,000
Table 3 Mid–West Home Products Last Year's Income Statement ('000s)
Revenues 37500
Cost of Goods Sold 31875
Gross Profit 5625
Selling & Administration Expenses 1125
Depreciation 1000
Earnings Before Interest and Taxes 3500
Interest Expenses 887
Earnings Before Taxes 2613
Taxes (40%) 1045
Net Income 1,568
Preferred Dividends 300
Income Available for Common 1,268
Common Stock Dividends 508
Addition to Retained Earnings 760

Table 4 Mid–West Home Products Balance Sheet (000's)
Current Assets 10,000 Current Liabilities 3000
Net Fixed Assets 75,000 Notes Payable 2000
Long–term Debt (10,000 outstanding, Coupon Rate = 8%, Face Value = $1,000) 10000

Study Guide for Final Examination
ACC/291 Final Examination Study Guide
This study guide will prepare you for the Final Examination you will complete in Week Five. It
contains practice questions, which are related to each week's objectives. In addition, refer to each
week's readings and your student guide as study references for the Final Examination.
Week One: Principle Assets
Objective: Prepare journal entries to account for transactions related to accounts receivable and bad
debt using both percentage of sales and the percentage of receivables methods.
1. The method of accounting for uncollectible accounts that results in a better matching of expenses
with revenues is the a. aging accounts receivable method b. direct write–off method. c. percentage ...
Cash.................................................4,000,000 Bonds Payable...........................................4,000,000 b.
Cash.................................................4,080,000 Bonds Payable...........................................4,080,000 c.
Premium on Bonds Payable.......................80,000 Cash................................................4,000,000
Bonds Payable..........................................4,080,000 d. Cash................................................4,080,000
Bonds Payable..........................................4,000,000 Premium on Bonds
Payable.............................80,000
12. If a corporation issued $3,000,000 in bonds which pay 10% annual interest, what is the annual
net cash cost of this borrowing if the income tax rate is 30%? a. $3,000,000 b. $210,000 c. $300,000
d. $90,000
Objective: Calculate depreciation and amortization expense using various methods.
13. Either the straight–line method or the effective–interest method of amortization will always
result in a. the same amount of interest expense being recognized over the term of the bonds b. the
same amount of interest expense being recognized each year c. more interest expense being
recognized than if premium or discounts were not amortized d. the same carrying value each year
during the term of the bonds
14. On January 1, Martinez Inc. issued $3,000,000, 9% bonds for $2,817,000. The market rate of

interest for these bonds is 10%. Interest is payable annually on December 31. Martinez uses the
effective–interest method of amortizing bond discount. At the end of the

Course Project 1
Bus 379 Course Project March 31, 2013 Task 1 1. National First with an APR of 3.25%(Prime Rate)
+6.75%=10% The ERA=(1+10%/2)^2 – 1= 10.25% Regions Best 13.17 APR compounded monthly.
The ERA = (1+13.17%/12)^12 – 1= 13.99% 2. I would recommend National First Bank, the ERA
with NFB is 10.25% and the ERA with Regions Best is 13.99%. National First Bank is calculated
semiannually so it is only twice a year but Regions Best is compounded monthly. The APR with
National Best is low even if it is Prime. 3. The loan amount is $6,950,000, interest rate is 8.6% APR
over 5 years. To do the calculation we work with (loan amount)*(interest rate)/(years) N=60
I=0.7167 PV= 6,950,000 Payment =x The monthly payment for ... Show more content on
Helpwriting.net ...
Most of the time the price of the preferred dividends is higher than the common stock because there
is more risk for investors but there is also more payoff if it does well. 4. 1.50 * (1+10%)=1.65 1.65 /
(10%–1%)= $18.33 IF the required rate of return increases from 8.1% to 10% then the current share
price of common stock with decrease from $21.41 to $18.33. As the price of the stock increases this
can be riskier for the investor. But with higher risk the returns should be higher as well with
dividends. If the dividends are higher this can boost the confidence of others to buy more stocks as
there are good returns with the company. Task 3 1. Annual Rate = 7.5% Current price of bond =
$1062 Term 20 years Par value of bond $1000 Annual interest $75.00 Semi–annual interest $37.50
The coupon rate AirJet Parts sets on new bonds would be 6.92% 2. The YTM rate is the rate of
return that could be earned if held until the maturity date. The coupon rate is usually a fixed and is
the known rate of the bond. 3. The credit risk on a bond is the chances that the company will default
on the bond. The amount the investor makes is lower. Inflation rate risk, when inflation goes up, the
price of the bond usually goes down. Interest rate risk the price of the bonds changes because of the
increase and decrease of the interest rates. 4. File quarterly

Silicon Valley Medical Technologies Case Study
EXECUTIVE SUMMARYSilicon Valley Medical Technologies (SIVMED) was founded as a
research and development firm. In the beginning, SIVMED performed its own basic research,
obtained patents on promising technologies, and then either sold or licensed the technologies to
other firms which marketed the products. The firm has since then grown and is now contracted to
perform research and testing for larger genetic engineering firms, biotechnology firms, the US
government, and is now widely recognized as the leader in an emerging growth industry. SIVMED's
founders were relatively wealthy individuals when they started company, and they committed a
great deal of their own funds to the venture. Their personal funds, however, were soon exhausted by
the ... Show more content on Helpwriting.net ...
For this reason, new, or marginal, costs are used in its calculation. WACC is calculated by
multiplying the cost of each capital component by its proportional weight and then summing then
together. The capital components included in this calculation are a firms after–tax costs of debt,
preferred stock, and common stock.
DebtThe first component of a firms WACC is its cost of debt. This is the effective rate that a
company pays on its current debt. Because interest expenses on debt are deductible, the after–tax
cost is used in its calculation. Cost of debt is calculated by multiplying the before–tax rate by one
minus the marginal tax rate. As given in the Silicon Valley case assignment handout, SIVMED's
long–term debt consists of 9.5% coupon, semiannual payment bonds with 15 years to maturity. The
bonds last traded at a price of $891.00 per $1,000 par value bond. Given this data, SIVMED's cost
of debt is calculated at 6.6% .
It is often questionable as to whether flotation costs are included in the calculation of a firms cost of
debt. Flotation costs are the costs associated with the issuance of new securities. These costs should
be included in this calculation. For debt, however, this value is usually ignored because it is very
small and does not have a significant affect on the outcome of the calculation. Also, when

Introduction to Financial Accounting
Introduction to Financial Accounting ACCT6331 –Prior Year Suggested Time: 90 minutes
1. When the amount of expenses recognized for the purpose of financial reporting exceeds the
expenses recognized for the purpose of tax reporting, a company will have deferred tax assets.
Please indicate if the above statement is true or false.
a. true b. false
2. BJ Services is an oil and gas service firm. The company does not issue any preferred stocks or
convertible securities. The company reports the following EPS data in its 2008 annual report (in
thousands except per share data).
Net income | $609,365 | Earnings per share: | | Basic | $2.08 | Diluted | $2.06 | Weighted average
shares outstanding: | | ... Show more content on Helpwriting.net ...
The sale results in a gain of $200,000 d. The sale results in a loss of $200,000
10. When investments are classified as available–for–sale, fair–value changes are recognized in the
balance sheet as unrealized gains or losses (AOCI) that affect owners' equity. Please indicate if the
above statement is true or false.
a. true
b. false
11. Under the equity method accounting, the investment account is recorded at fair value but only if
fair value exceeds original cost. Please indicate if the above statement is true or false.
a. true
b. false
Answer: b, False
Rationale: Fair–value accounting is not used for equity method investments.
12. Solomar Inc. has fiscal year ending on 12/31. Solomar purchased security A on 4/20/2007 for
$450,000. As of 12/31/2007, the fair market value of security A has increased to $658,000. On
5/3/2008, Solomar sold security A for $700,000. How much is recorded as realized gain at the time
of sale if the security is classified as available–for–sale security?
a. $42,000

b. $208,000
c. $40,500
d. $250,000
13. Using the information provided in question #25, how much is recorded as realized gain at the
time of sale if the security is classified as trading security?
a. $42,000
b. $208,000
c. $40,500
d. $250,000
14. A company purchased available for sale securities on 1/1/2008 for $80,000. On 12/31/2008, the
fair market value of the available for sale security increases by $45,000,

Case 54 Questions
Questions 1. a. Discuss the specific items of capital that should be included in the WACC. The
WACC calculation should include all the sources of capital like common stock, preferred stock,
bonds and any other long–term debt. b. The comptroller currently finds the weights for the weighted
average cost of capital (WACC) from information from the balance sheet shown in Table 2.
Compute the book value weights that the comp
trol
ler currently uses for the company's capital
structure. (In Millions)
c. Based on the suggestion that the focus should be on market values, compute the weights of debt,
preferred stock, and common stock. (In Millions)
MV $
MV %
LT Debt
48.36
19.5%
Preferred
10.00 ... Show more content on Helpwriting.net ...
Explain. e. What are some alternative ways to obtain a market risk premium for use in a CAPM
cost–of–equity calculation? Discuss both the possibility of obtaining estimates from outside
organizations and also ways which Ace could calculate a market risk premium itself. 6. a. What is
Ace's discounted cash flow (DCF) cost of retained earnings? b. Suppose Ace, over the last few
years, has had an 18 percent average return on equity (ROE) and has paid out 20 percent of its net
income as dividends. Under what conditions could this information be used to help estimate the
firm's expected future growth rate, g? Estimate ks using this procedure for determining g. c. What
was the firm's historical dividend growth rate using the point–to–point method? Using the linear
regression method? 7. Use the bond–yield–plus–risk–premium method to estimate Ace's cost of
retained earnings. 8. Based on all the information available, what is your best estimate for ks?
Explain how you decided what weight to give to each estimating technique. 9. What is your estimate
of Ace's cost of new common stock, ke? What are some potential weaknesses in the procedures used
to obtain this estimate? 10. a. Compute Ace's WACC's based on the company's target capital
structure and construct the marginal cost of capital (MCC) schedule. How large could the company's
capital budget be before it is forced to sell new common stock? Ignore depreciation at this point. b.
Would

Essay on Summit Partners Fleetcor a
Private Equity and Investment Banking
SPRING 2010
Summit Partners FleetCor A
1. Summarize the proposed transaction: Summit Partners proposes to FleetCor Technologies (later
preferred as "FleetCor" or the "Company") an investment into FleetCor for the total amount of
$44.9 million in return for a post transaction ownership of 54.2% in the "Company" and coming
down to 46% ownership in the company after newly created stock options for management
equivalent to 15% ownership in the company has been completely executed and fully diluted. This
investment is in the form of convertible preferred stock with an 8% accrued interest, compounding
annually. As the transaction come through, Summit's prefer stock will be treated equal–footing in ...
➢ FleetCor has not yet settle the final agreements with the seven "Super Licensees" for acquiring
them, creating some sources of unstable and going concern business ( Suggest: the company should
be more specific and aggressive while dealing with the licenses to make the final agreements.
➢ Higher gas prices result in a larger A/R financing cost and also lead to a higher bad debt expense,
even though the net revenue might still be the same ( Suggest: implement some forms of hedging
strategies against the increases in gas prices such as going long on a call option at a specific gas
price which might materially increase the A/R financing cost and bad debt expenses.
➢ FleetCor currently has weak managerial reporting system ( Suggest: bringing in some more IT
consultants and programmers to create a more effective managerial and financial system while
working along with a CFO who is a financial expert.
4. Using Exhibit 4B evaluate the proposed acquisitions. Would you recommend purchasing all of
the licenses? Why or why not? Explain Briefly Overall, the proposed acquisitions yield the company
a combined entity with much better performance in term of profitability such as: New combined
gross margin is 5% higher than the base only. EBIT margin is almost 3.75 times higher than the base
only. EBITDA margin is over 1.5 times higher than the base only.
I

The Value Of A Firm 's Cost Of Capital Essay
Insert Creative Title Here – don't forget to change paper name Calculating a firm's cost of capital is
highly important in capital budgeting as capital costs are used to determine investment
opportunities, which in turn determines the profitability of the firm. This is true even if a firm
knows that a particular project will be financed in a particular way. For example, with debt, the firm
must use the concept of Weighted Average Cost of Capital to evaluate all of their capital investment
projects. 1 The target capital structure, which determines the cost of capital, must be applied to each
investment opportunity because if all the cheap (i.e. debt) capital is used for one project, only the
expensive (i.e. equity) capital will be available for future consideration. A later project could be
considered unprofitable if evaluated with the cost of equity, but profitable if evaluated with the
Weighted Average Cost of Capital (WACC). This can become confusing for the person evaluating
the projects, but there is an easier solution. The optimal capital budget results only when each
investment opportunity is evaluated with the WACC. Each dollar in the capital budget is considered
part debt, part preferred stock and part common equity. Of course, the equity will come from either
current retained earnings or the sale of new common stock.
To find the WACC, the cost of each of the capital components mentioned above as debt, preferred
stock and common equity are calculated

Hearts 'R Us Preferred Stock Classification
MEMO To: Borg Re: Preferred stock classification Facts Borg (the Company) is an early–stage
research and development medical device company. Borg has no current products in the
marketplace but is in the final stages of going to market with the Heart Valve System. All
preliminary trials have been approved by the FDA, and the Company is in the final trial; once the
final trial is complete, the Company will present the product to the FDA for final approval. If
approved by the FDA, the Heart Valve System will revolutionize the way medical professionals
repair heart valve defects. Bionic Body ("Bionic"), a SEC registrant, is a biological medical device
company that focuses on the development of implantable biological devices, surgical ... Show more
content on Helpwriting.net ...
For this reason, among others, Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) Section 480 contains extensive guidance on distinguishing liabilities from
equity. However, it is first necessary to determine if this Code section is applicable. ASC 480–10–
15–3 states: The guidance in the Distinguishing Liabilities from Equity Topic applies to any
freestanding financial instrument, including one that has any of the following attributes: a.
Comprises more than one option or forward contract The Shares that Borg sold to Bionic contain
both a mandatory conversion right and a contingent redemption right meaning that the Shares
possess both a conversion option and an embedded put option (the holder can force redemption on
the seller). These features are embedded in the host contract that the Shares represent. It would
therefore be appropriate to apply the guidance of ASC section 480. To aid in the application of this
guidance, Ernst & Young provides a flowchart in their publication, Issuer's Accounting for
Debt and Equity Financings (October 2015), Section 3.2 that is included at the end of this memo.
ASC 480–10–25–4 specifies that, "a mandatorily redeemable financial instrument shall be classified
as a liability..." The Shares in this case possess a contingent redemption right wherein the Shares
will be redeemed on the fifth anniversary of the date of purchase if the Heart Valve System that
Borg

Make My Trip
Make My Trip
MakeMyTrip.com, India's leading online travel company was founded in the year 2000 by Deep
Kalra. Enamoured by the Internet and frustrated by how hard it was to travel in India he opened
MakeMyTrip.com. Created to empower the Indian traveller with instant booking and comprehensive
choices, the company began its journey in the US–India travel market. It aimed to offer a range of
best–value products and services along with cutting–edge technology and dedicated round–the–
clock customer support.
After positioning itself as customer oriented and reliable brand in India, MakeMyTrip started their
operations in USA in 2005. The company was listed on NASDAQ and was a great success from the
very beginning. By September,2010 they were ... Show more content on Helpwriting.net ...
40.83 | 39.67 | 0.0 | Other Current Liabilities, Total | 38.64 | 24.54 | 21.41 | 11.15 | 0.0 | Total Current
Liabilities | 49.05 | 35.34 | 72.67 | 61.91 | 0.0 | | | | | | | Total Long Term Debt | 0.18 | 0.15 | 0.13 | 0.04
| 0.0 | Deferred Income Tax | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | Minority Interest | 0.08 | 0.0 | 0.0 | 0.0 | 0.0 |
Other Liabilities, Total | 2.17 | 1.17 | 2.79 | 3.19 | 0.0 | Total Liabilities | 51.48 | 36.66 | 75.59 | 65.14 |
0.0 | | | | | | | Redeemable Preferred Stock | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | Preferred Stock – Non
Redeemable, Net | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | Common Stock | 0.02 | 0.02 | 0.01 | 0.01 | 0.0 | Additional
Paid–In Capital | 150.14 | 111.54 | 11.36 | 10.82 | 0.0 | Retained Earnings (Accumulated Deficit) | –
22.87 | –34.11 | –35.45 | –35.54 | 0.0 | Treasury Stock – Common | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ESOP
Debt Guarantee | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | Unrealized Gain (Loss) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | Other
Equity, Total | –8.58 | –1.17 | –0.87 | –2.52 | 0.0 | Total Equity | 118.72 | 76.28 | –24.96 | –27.24 | 0.0 |
| | | | | | Total Liabilities & Shareholders' Equity | 170.19 | 112.94 | 50.63 | 37.9 | 0.0 | | | | | | | Total
Common Shares Outstanding | 37.16 | 35.1 | 34.13 | 34.13 | 0.0 | Total Preferred Shares Outstanding |
0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
Financial data in USD
Values in Millions (Except for per share items)

Building a Fortress Balance Sheet
erspective P
Insights for America's Business Leaders
Building A Fortress Balance Sheet:
Protect Your Bank's Financial Health While Positioning It For Growth
Executive Summary: – The Vauban Model – Current Market Overview – Stress Testing and the
Fortress Balance Sheet – Capital–Raising Strategies
"Ultimately, market participants themselves must address the fundamental sources of financial
strains – through deleveraging, raising new capital and improving risk management."1 – Ben
Bernanke
The Vauban Model
Throughout the remainder of the year, banks' capital needs will accelerate as credit losses are
expected to continue, despite easing monetary policies and government intervention. To weather the
turbulence in an economy that ... Show more content on Helpwriting.net ...
And don't be alarmed if we continue to see more of this as the market tries to find a floor on
valuations. Faced with this situation, you and your management team should take steps to raise
capital now if there is a projected capital need. After all, there is no guarantee that market conditions
are going to improve in the short term, and they could just as easily erode further.
3
"Our primary concern right now – my primary concern – is the stability of our financial system,
the orderliness of the markets, and that's where our focus is."3 – Henry Paulson, Secretary of the
Treasury
Play Strong Defense
In anticipation of that other shoe dropping and the additional credit stress that could ensue, consider
the following strategies and start building an unassailable defensive position.
Stress Test Your Asset Classes
Stress testing is a pre–emptive risk management process designed to help determine the impact of
charge–offs against your current capital levels and the amount of capital you'll need to fill the holes

caused by lost earnings. This scenario planning enables you to project peak potential losses by asset
type within a specified geography over a defined time horizon. Typically, analytics are applied
against a range of potential situations:
Estimated Peak Losses: Expected 2008 Charge–off Rates ($MM)
Asset Class 1–4 Family mortgages Estimated

Fin 419 Week 5 Team Assignment with Answers
Principles of Managerial Finance FIN/419 P12.4 Break even analysis. Barry Carter is considering
opening a music store. He wants to estimate the number of CDs he must sell to break even. The CDs
will be sold for $13.98 each, variable operating costs are $10.48 per CD, and annual fixed operating
costs are $73,500. A) Find the operating breakeven point in number of CDs. Q= FC / P– VC Q=
73,500 / 13.98 – 10.48 Q= 21,000 CDs B) Calculate the total operating costs at the breakeven
volume found in part a. EBIT= Q x (P – VC) – FC EBIT= 21,000 x (13.98 – 10.48) – 73,500 EBIT=
21,000 x 3.5 – 73,500 EBIT= 0 C) If Barry estimates that at a minimum he can sell 2,000 CDs per
month, should he go ... Show more content on Helpwriting.net ...
To do so, the firm must acquire a machine costing $80,000. The machine can be leased or
purchased. The firm is in the 40% tax bracket, and its after–tax cost of debt is 9%. The terms of the
lease and purchase plans are as follows: Lease The leasing arrangement requires end–of–year
payments of $19,800 over 5 years. All maintenance costs will be paid by the lessor; insurance and
other costs will be borne by the lessee. The lessee will exercise its option to purchase the asset for
$24,000 at termination of the lease. Purchase If the firm purchases the machine, its cost of $80,000
will be financed with a 5–year, 14% loan requiring equal end–of–year payments of $23,302. The
machine will be depreciated under MACRS using a 5–year recovery period. (See Table 3.2 on page
108 for the applicable depreciation percentages.) The firm will pay $2,000 per year for a service
contract that covers all maintenance costs; insurance and other costs will be borne by the firm. The
firm plans to keep the equipment and use it beyond its 5–year recovery period. a. Determine the
after–tax cash outflows of Northwest Lumber under each alternative. Year | Lease after–tax outflows
| Purchase after–tax outflows | 1 | $11,880 | $13,622 | 2 | 11,880 | 10,459.71 | 3 | 11,880 | 15,391.10 |
4 | 11,880 | 18,512.89 | 5 | 35,880 | 19,516.93 | b.

Finance
1. A financial analyst is responsible for maintaining and controlling the firm's daily cash balances.
Frequently manages the firm's shortâ€'term investments and coordinates shortâ€'term borrowing and
banking relationships. FALSE
2. Finance is concerned with the process institutions, markets, and instruments involved in the
transfer of money among and between individuals, businesses and government. TRUE
3. Financial services are concerned with the duties of the financial manager. FALSE
4. Financial managers actively manage the financial affairs of many types of business–financial and
non–financial, private and public, for–profit and not–for–profit. False??
5. In partnerships, owners have ... Show more content on Helpwriting.net ...
TRUE
28. Liquidity preference theory suggests that for any given issuer, longâ€'term interest rates tend to
be higher than shortâ€'term rates due to the lower liquidity and higher responsiveness to general
interest rate movements of longerâ€'term securities; causes the yield curve to be upwardâ€'sloping.
TRUE
Chapter 7
29. Holders of equity have claims on both income and assets that are secondary to the claims of
creditors. TRUE
30. The tax deductibility of interest lowers the cost of debt financing, thereby causing the cost of
debt financing to be lower than the cost of equity financing. TRUE
31. Preferred stock is a special form of stock having a fixed periodic dividend that must be paid
prior to payment of any interest to outstanding bonds. FALSE
32. Cumulative preferred stocks are preferred stocks for which all passed (unpaid) dividends in
arrears must be paid in additional shares of preferred stock prior to the payment of dividends to
common stockholders. False???

33. Preferred stock is often considered a quasiâ€'debt since it yields a fixed periodic payment.
TRUE
34. The amount of the claim of preferred stockholders in liquidation is normally equal to the market
value of the preferred stock. False???
35. Cumulative preferred stocks are

Gestion de La Informacion Financiera
Ejercicio ST–2 capítulo 7, Brigham, E.. (1992) Fundamentals of Financial Mangement,Estados
Unidos: Editorial The Dryden Press,6a ed
Lancaster Engineering Inc. (LEI) has the following capital structure, which it considers to be
optimal:
Debt 25%
Prefered stock 15
Common equity 60 –––– 100%
LEI's expected net income this year is $34,285,72; its establish dividend payout ratio is 30 percent;
its federal–plus–state tax rate is 40%; and investors expect earnings and dividends to grow at a
constant rate of 9 percent in the future. LEI paid a dividend of $3.60 per share last year and its stock
currently sells at a price of $60 per share. ... Show more content on Helpwriting.net ...
.18% | Acciones Preferentes | (0–50,000) | 5% | $11/100*(1–.05) | 11.58% | | 50,000.0 | 10% |
$11/100*(1–.1) | 12.22% | Deuda | (0–5,000) | 12% | (.12(1–.4) | 7.20% | | (5,000–10,000) | 14% |
(.14(1–.4) | 8.40% | | 10,000.0 | 16% | (.16(1–.4) | 9.60% |
c) Calculate the weighted average cost of capital in the interval between each break in the MCC
schedule c) | | W | K | KW | (0–2000) | D | 25% | 7.2% | 1.80% | | AP | 15% | 11.58% | 1.74% | | AC |
60% | 15.54% | 9.32% | | | | | 12.861% | | | | | | (20000–40000) | | W | K | KW | | D | 25% | 8.4% |
2.10% | | AP | 15% | 11.58% | 1.74% | | AC | 60% | 16.27% | 9.76% | | | | | 13.597% | | | | | | (40000–
50000) | | W | K | KW | | D | 25% | 9.6% | 2.40% | | AP | 15% | 11.58% | 1.74% | | AC | 60% | 16.27%
| 9.76% | | | | | 13.897% | | | | | | (50000–60000) | | W | K | KW | | D | 25% | 9.6% | 2.40% | | AP | 15% |
12.22% | 1.83% | | AC | 60% | 16.27% | 9.76% | | | | | 13.993% | | | | | | (+60000) | | W | K | KW | | D |
25% | 9.6% | 2.40% | | AP | 15% | 12.22% | 1.83% | | AC | 60% | 17.18% | 10.31% | | | | | 14.538% |
d) LEI has the following investment opportunities, which are graphed below as the IOS schedule:
Project | Cost at t=0 | Rate of return | A | $10,000 | 17.4%

Preferred Stock Paper
The Risks of Preferred Stock Portfolios
SLCG Working Paper 1
Abstract Preferred stocks are a hybrid of debt and equity. In this paper, we examine preferred stocks
with an emphasis on the risks of holding portfolios of preferred stocks. We demonstrate that
preferred stocks are similar to debt when the issuing company is financially healthy, and become
more similar to equity when the company's financial condition deteriorates. We show that issuers of
preferred stocks are heavily concentrated in the financial services industry, a fact that exposes
investors who hold a portfolio concentrated in preferred stocks to further risk – industry
concentration risk. We illustrate the features of preferred stocks using the Fannie Mae 2008 issuance
as ... Show more content on Helpwriting.net ...
Figure 2: Total Offering Value of Preferred Stocks Issued, 1994–2009.
This figure presents the amount in billions of dollars of new public issuances of preferred stocks
between 1994 and 2009 for the financial and the non–financial sectors. $200 $180 $160 $140
Billion $120 $100 $80 $60 $40 $20 $0
Financial Sector Non–Financial Sector
The Federal Reserve requires banks to maintain a certain level of permanent capital, or "Tier 1"
capital, to control banks' risk profiles and thus protect investors and the banks' depositors. This
permanent capital is essentially equity capital since its holders do not have the right to demand
periodic payments or repayment of any principal or face value. In 1996, the US Federal Reserve
ruled that non–redeemable, non–cumulative preferred stock could be used to meet banks' capital
requirements. 2
2
See for example Bentson, Irvine, Rosenfeld, and Sinkey (2003).
Securities Litigation and Consulting Group, Inc. © 2010.
4 Today, Tier 1 capital includes common stock, retained earnings and non–cumulative, non–
redeemable preferred stock. In addition to banks, other financial institutions issue significant
amounts of preferred stocks. For example, in 2007 Freddie Mac and Fannie Mae raised

How Should Lucent Recognize Revenue On This Contract?
–27– Lucent Technologies, Inc.–Revenue Recognition Lucent Technologies designs and delivers
networks for the world's largest communications service providers. Backed by Bell Labs research
and development, Lucent relies on its strengths in mobility, optical, data and voice networking
technologies as well as software and services to develop next–generation networks. The company's
systems, services and software are designed to help customers quickly deploy and better manage
their networks and create new, revenue–generating services that help businesses and consumers. As
of December 31, 2002, Lucent employed approximately 40,000 people worldwide (two years prior,
the figure was close to 123,000). Lucent is listed on the New York Stock ... Show more content on
Helpwriting.net ...
By September 30, 2002, some of the equipment had been delivered and installed at the RBOC.
Other equipment had been manufactured and shipped, but not yet received by the customer. Still
other products are to be delivered over the following two fiscal years. All products contain a two–
year warranty. Lucent has promised to maintain the products and provide software upgrades and a
dedicated customer support team for a three–year period. How should Lucent recognize revenue on
this contract? For the contract in part iv, how would your answer change if you learned that there
was a side agreement allowing the RBOC to return the products, no questions asked, through
January 31, 2003? What if Lucent promised significant discounts on future purchases in return for
signing the initial $200 million contract? How could Lucent manage its reported earnings through
strategic revenue recognition choices for the contract in part iv?  Analysis  iv. v. vi.   g.
Evaluate the three–year trend in Lucent's sales and margins. Conduct an internet search to establish
reasons for the change. Good starting points include the company's website www.lucent.com, the
Securities and Exchange Commission's EDGAR service (where Lucent is required to file financial
reports) at www.sec.gov, and online investing sites. h. Refer to the accompanying article, Disparities
in How U.K. Companies Report Sales Make Investors Wary, from the April 1, 2002 issue of The
Wall Street Journal. i. ii.

Fi 515 Week6 Exam Essay
Top of Form
Grading Summary
These are the automatically computed results of your exam. Grades for essay questions, and
comments from your instructor, are in the "Details" section below.
Date Taken:
10/13/2013
Time Spent:
2 h , 49 min , 52 secs
Points Received:
52 / 100 (52%)
Question Type:
# Of Questions:
# Correct:
Multiple Choice
9
5
Essay
1
N/A
Grade Details – All Questions
1.
Question :
(TCO D) A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%, and
the constant growth rate is g = 4.0%. What is the current stock price?
Student Answer:
$23.11
$23.70

$24.31
$24.93
$25.57 Instructor Explanation:
Chapter 7
D0 ... Show more content on Helpwriting.net ...
Student Answer:
12.60%
13.10%
13.63%
14.17%
14.74% Instructor Explanation:
Chapter 9
Bond yield 8.75%
Risk premium 3.85% rs = rd + Risk premium 12.60%
Points Received:
10 of 10 Comments:
7.
Question :
(TCO F) Cornell Enterprises is considering a project that has the following cash flow and WACC
data. What is the project's NPV? Note that a project's expected NPV can be negative, in which case
it will be rejected. WACC: 10.00%
Year 0 1 2 3 –––––––––––––––––––––––––––––––––––––––––––––––
Cash flows –$1,050 $450 $460 $470
Student Answer:
$ 92.37
$ 96.99
$101.84
$106.93
$112.28 Instructor Explanation:
Chapter 10
WACC: 10.00%

Year 0 1 2 3
Cash flows –$1,050 $450 $460 $470 NPV = $92.37
Points Received:
10 of 10 Comments:
8.
Question :
(TCO F) Simkins Renovations Inc. is considering a project that has the following cash flow data.
What is the project's IRR? Note that a project's IRR can be less than the WACC (and even negative),
in which case it will be rejected.

Critical Analysis
Sheri Ebner
Professor Shelton
A321
–––––––––––––––––––––––––––––––––––––––––––––––––
06 June 2015
Week 1 Assignment 3: Critical Analysis
Part One
Title: Marketing to Children: Accepting Responsibility
Author: Gael O'Brien
Link: http://business–ethics.com/2011/05/31/1441–marketing–to–children–accepting–responsibility/
This article highlights the many issues of marketing to children, especially in the fast food
department. Specifically, this article talks about the issue of obesity and McDonalds, which is one of
the world's largest fast food chains. As of late, cities like San Francisco is voting to ban selling toys
with fast food for children, especially when it exceeds levels of salt, fat, calories, and sugar. ... Show
more content on Helpwriting.net ...
It all comes down to personal choice, as the CEO originally stated. Sure, McDonald's should have
some responsibility, but they have done that by changing some of the food choices in Happy Meals.
The rest is up to the parents.
Part Two
Calculating Capital Adequacy Standards a. Define Capital Adequacy Standards
Percentage ratio of a financial institution's primary capital to its assets (loans and investments, used
as a measure of its financial strength and stability. According to the Capital Adequacy Standard set
by Bank for International Settlements (BIS), banks must have a primary capital base equal at least to
eight percent of their assets: a bank that lends 12 dollars for every dollar of its capital is within the
prescribed limits (BusinessDictionary.com).
b. Define Tier 1 & Tier 2
"Tier 1 capital is composed of common equity plus trust–preferred securities minus intangible
assets. Tier 2 capital is a bank's loan–loss reserve amount plus other qualifying securities (e.g.
subordinated debt and preferred stock) plus net unrealized gains on marketable securities. Total
capital is the sum of Tier 1 and Tier 2 capital" (Melicher and Norton).

c. Explain the International Implications of CAS
The central banks and other national supervisory authorities of major industrialized countries met

Acc 206 Week 2 Assignment
Week 2 Assignment
ACC 206
1. Analysis of stockholders' equity 1. Preference stock (100 par value) issued during 20X6 =
580,000 – 500,000 = $80,000
Number of preference shares issued during 20X6
= Par value of preferred shares issued / Par value per share of preferred shares
= 80,000 / 100
= 800 shares
2. Common stock (10 par value) sold in 20X6 = 2,350,000 – 1,750,000 = $600,000
Number of common stock sold = 600,000 / 10 = 60,000 shares
Additional paid in capital = 4,620,000 – 3,600,000 ... Show more content on Helpwriting.net ...
Definitions of manufacturing concepts
Materials and supplies used
Brass $75,000
Repair parts 16,000
Machine lubricants 9,000
Wages and salaries Machine operators 128,000
Production supervisors 64,000
Maintenance personnel 41,000
Other factory overhead Variable 35,000
Fixed 46,000
Sales commissions 20,000 1. Total direct material consumed = Brass = 75,000
2. Total direct labor = Wages and salaries Machine operators = $128,000
3. Total Prime cost = Total direct material + Total direct labor
= 75000 + 128,000

= $203,000
4. Total conversion cost = $128,000 + $16,000 + $9,000 + $64,000 + $41,000 + $35,000 + $46,000
= $339,000
4. Schedule of cost of goods manufactured, income statement
The following information was taken from the ledger of Jefferson Industries, Inc.: Direct labor |
$85,000 | | Administrative expenses | $59,000 | Selling expenses | 34,000 | | Work in. process | | Sales
| 300,000 | | Jan. 1 | 29,000 | Finished goods | | | Dec. 31 | 21,000 | Jan. 1 |

Common and Preferred Stock
Intermediate Acct410B
Research Paper
Common and Preferred Stock
How do Corporations raise capital? All of the large corporations could not have grown to their
present size without being able to find innovative ways to raise capital to finance ultimate
expansion. There are many ways this can be accomplished, but this review will take a look at just
two ways: the issuance of Preferred Stock and selling of Common Stock. What exactly is a stock,
anyway? Basically, stock is ownership, simple as that. Buy a share of APPLE Inc. and acquire a tiny
sliver of the computer giant, tying the investments fate to that of the Chairman, for better or worse.
This is ownership in the most literal sense: You get a piece of every desk, contract and ... Show
In contrast to a Common Stock, a company may choose to issue Preferred Stock to raise capital.
Preferred Stock represents a hybrid in the sense that it is an equity interest with certain features
resembling debt. Buyers of these shares have special status in the event the underlying company
encounters financial trouble. A typical preferred shareholder doesn't vote on the composition of the
company's board or other matters. They are more interested in receiving regular dividends, since
these dividends do not fluctuate based on the company's profits; each preferred shareholder is
entitled to a fixed amount at certain periods, just so long as the company has the money to do so.
Dividends are, also, paid to preferred stockholders before they are paid to common stockholders.
Preferred stock is issued with a specific dividend rate. The dividend rate may be stated as a dollar
amount or as a percentage of the par value. When dividends are paid, preferred stockholders are
paid the amount applicable to their class of preferred stock. Several advantages to issuing preferred
stock include: no dilution of management's interest in corporate growth or in voting power (if non–
voting preferred stock is issued), and predictable dividend payments and preferences upon
liquidation (for which investors may pay a premium). Although, disadvantages include: a

Investment Chapter 11 Answer
CHAPTER 11 – CALCULATING THE COST OF CAPITAL
Questions
LG1 11–1 How would you handle calculating the cost of capital if a firm were planning two issue
two different classes of common stock?
Solution: As the two different classes of common stock are likely to have different component costs,
calculate the cost and weight for each separately.
LG2 11–2 Why don't we multiply the cost of preferred stock by 1 minus the tax rate, as we do for
debt?
Solution: Because dividends on preferred stock, unlike interest on debt, are paid out of after–tax
income.
LG2 11–3 Expressing WACC in terms of iE, iP, and iD, what is the theoretical minimum for the
WACC?
Solution: The theoretical minimum WACC would be that for an all–debt firm: ... Show more content
What is JaiLai's cost of equity?
Solution: Using equation 11–2:
[pic]
LG3 11–3 Oberon Inc. has a $20 million (face value) bond issue selling for 97 percent of par that
pays an annual coupon of 8.25 percent. What would be Oberon's before–tax component cost of
debt?
Solution: Solving equation 11–5 for iD:
[pic]

Yields iD = .087115, or 8.7115%
LG3 11–4 KatyDid Clothes has a $150 million (face value) bond issue selling for 104 percent of par
that carries a coupon rate of 11 percent, paid semiannually. What would be Katydid's before–tax
component cost of debt?
Solution: Solving equation 11–5 for iD:
[pic]
Yields iD = .052586, or 5.2586% on a semiannual basis. Since the cost of debt is normally quoted
on a nominal annual basis, we should multiple this semiannual rate by two to get a quoted
component cost of 5.2586% × 2 = 10.5172%
LG3 11–5 ILK has preferred stock selling for 97 percent of par that pays an 8 percent annual
coupon. What would be ILK's component cost of preferred stock?
[pic]
LG3 11–6 Marme Inc. has preferred stock selling for 137 percent of par that pays an 11 percent
annual coupon. What would be Marme's component cost of preferred stock?
[pic]
LG4 11–7 FarCry Industries, a maker of telecommunications equipment, has 2

Common Stock And Preferred Stock Essay
First: Equity
Common Stock and Preferred Stock are both methods of purchasing equity in a business entity.
Common stock generally carries voting rights along with it, while preferred shares generally do not.
Preferred shares act like a hybrid security, in between common stock and holding debt. Preferred
stock can (depending on the issue) be converted to common stock and have access to accumulated
dividends and multiple other rights. Preferred stock also has access to dividends and assets in the
case of liquidation before common stock does. Second :Debt
Debt can be "purchased" from a company in the form of a bond.
A bond is a financial security that represents a promise by a company or government to repay a
certain amount, with interest, to the bondholder.
# Bonds and stocks are both securities, but the major difference between the two is that (capital)
stockholders have an equity stake in the company (i.e., they are owners), whereas, bondholders have
a creditor stake in the company (i.e., they are lenders). Another difference is that bonds usually have
a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding
indefinitely
Source: Boundless. "Comparing Common Stock, Preferred Stock, and Debt." Boundless Finance.
Boundless, 21 Jul. 2015. Retrieved 27 Apr. 2016 from

Compare and Contrast
Course Project – Part I
AirJet Best Parts, Inc
Student: Goldie Scarbrough
Course: Finance
Instructor: Professor Mike Woodard
Date: 03/23/2013
Task 1: Assessing loan options for AirNet Best Parts, Inc
The Company needs to finance $8,000,000 for a new factory in Mexico. The funds will be obtained
through a commercial loan and by issuing corporate bonds. Here is some of the information
regarding the APRs offered by two well–known commercial banks. Bank | APR | Number of Times
Compounded | National First | Prime Rate + 6.75% | Semiannually | Regions Best | 13.17 | Monthly |
1. Assuming that AirJet Parts, Inc. is considering loans from National First and Regions Best, what
are the EARs for these two banks? ... Show more content on Helpwriting.net ...
Preferred dividends are generally fixed they can be valued as a constant growth rate of zero. You use
the zero growth models for the preferred stock and the assumption that the dividends always stay the
same and you use the constant growth model for common stock because the dividend grows by a
specific percent a year.
4. What would happen with the price you computed above if AirJet Best Parts, Inc. announces that
dividends at the end of the year will increase. What if the required rate of return increases? What
changes in dividends will affect the stock price and how?
If the amount of the dividend were to increase at the end of the year, the common stock amount
would increase. If the required would rate of return increase, the current share price of common
stock would decrease. As the stock price increases, the risk becomes higher for investors but they
would be willing to pay for the higher price because there is also an expectation that there will be a
higher return in dividends. An increase in dividends would make stock higher as investors will see
that the stock pays good dividends and they will be willing to pay good money in return for a good
payout.
Task 3: Bond Evaluation

AirJet Best Parts, Inc. would like to issue 20–year bonds to obtain remaining funds for the New
Mexico plant. The company currently has 7.5% semiannual

Swan Davis Inc
Case 72 Swan–Davis, Inc. Bond and Stock Valuation Swan–Davis, Inc. (SDI) manufactures
equipment for sale to large contractors. The company was founded in 1976 by Tom Stone, the
current chairman, and it went public in 1980 at $1 per share. The stock currently sells for $15, Stone
owns 14 percent of the shares, and other officers and directors control another 13 percent. The
industry is cyclical, and competition is strong, so profits are some–what unstable. Tables 1, 2, and 3
provide historical balance sheets, income statements, and ratios for the company for the period
1994–1996, Table 4 provides industry average data for 1994–1996, and Table 5 provides one
security analyst's forecasted data for the company based on assumptions ... Show more content on
Helpwriting.net ...
It is agreed that in your explanation you will assume that corporations have a state–plus–federal
income tax rate of 40 percent, and you will use the top personal tax rate of 39.6 percent. c. SDI's
officers have been under pressure from the board of directors to do something to improve the price
of the common stock. Management is also concerned about the stock price personally because
bonuses are based on the performance of SDI's stock price relative to other firms in its industry. So,
they would like a detailed explanation of how the market price is determined–what do investors
look for, and what can management do to provide what investors want? Bob Wilkes also wants you
to explain how stock valuation information be used to help estimate the company's cost of equity.
Tony Biddle provided some information that can be used in the stock valuation process. First, as
background on what investors think about the company, here are some representative quotations
taken from analysts' reports issued during the past few years. August 1992. Ed Thompson, Smyth
Farley's construction analyst: "SDI's investment in new facilities is paying off in lower costs and
higher volumes, and its R&D and marketing programs are paying off in increased sales.
Management is confident that sales and earnings will set new records this year, and the CFO regards
an earnings growth

Tax Research Essay
Tax Research Problem 6–59
Parent Corporation owns 85% of the common stock and 100% of the preferred stock of Subsidiary
Corporation. The common stock and preferred stock have adjusted bases of $500,000 and $200,000,
respectively, to Parent. Subsidiary adopts a plan of liquidation on July 3 of the current year, when its
assets have a $1 million FMV. Liabilities on that date amount to $850,000. On November 9,
Subsidiary pays off its creditors and distributes $150,000 to Parent with respect to its preferred
stock. No cash remain to be aid to Parent with respect to the remaining $50,000 of its liquidation
preference for the preferred stock, or with respect to any common stock. In each of Subsidiary's tax
years, less than %10 of its gross ... Show more content on Helpwriting.net ...
In a Court–reviewed opinion, we held that the phrase "all its stock" did not include "nonvoting stock
which is limited and preferred as to dividends." 27 T.C. at 688. Thus, Hazleton Bakeries'
distribution, which was in respect of only the nonvoting preferred stock, was not a distribution in
complete cancellation or redemption of all its stock.
The case of H.K. Porter Co., Inc. 87 T.C. 689 (1986) also had a subsidiary liquidate assets and the
distribute failed to cover the preferred stock's liquidation preference. On its 1978 and 1979 Federal
income tax returns, petitioner claimed losses with respect to its Porter Australia stock. In his notice
of deficiency, respondent disallowed said losses because "under I.R.C. Sec. 332, no gain or loss is
recognized on the receipt of property distributed in complete liquidation of a subsidiary
corporation." The court ruled in favor of H.K. Porter. "Finally, because we have held that section
332 does not bar the recognition of petitioner's losses, we hold that, based on the record, petitioner
is entitled to an ordinary loss of $249,981 in 1978 with respect to the worthlessness of its common
stock and a long–term capital loss of $1,957,770 in 1979 with respect to its preferred stock. See sec.
165(a) and (g)."
Like both cases Parent Corporation received assets in a liquidating

Preferred Shares (Stock)
Preferred Shares (Stock) The words such as stock and securities are currently used not only by
business–related I have chosen to research preferred stock for this individual project.
At first, from an accounting stand point, capital stock (stock) is a part of shareholders' equity as the
later is composed of capital stock and retained earnings and represents the amount by which a
company is financed through common and preferred shares.
The definition of stock varies across the dictionaries. However, most dictionaries agree that stock
(also referred to as shares or equity) is a share in the ownership of a company: "a type of security
that signifies ownership in a corporation and represents a claim on part of the corporation's ... Show
This amount is represented by the capital that was contributed to the corporation when the shares
were first issued. Par value of preferred stock is defined as "the amount that a share of preferred
stock is worth on the trading market" <http://www.businessdictionary.com/definition/par–value–
of–preferred–stock.html>). In other words, it is a stated legal amount for each share of preferred
stock. In accounting, compliant with state regulations, the par value of preferred stock must be
recorded in its own paid–in capital account Preferred Stock. If the corporation receives more than
the par amount, the amount greater than par would be recorded in another account such as Paid–in
Capital in Excess of Par – Preferred Stock. (<http://www.accountingcoach.com/online–
accounting–course/17Xpg07.html>) GIVE EXAMPLE FOR THE PRESENTATION
In order to make their preferred stock more attractive to potential investors, corporations offer a
variety of features in their preferred stock. These characteristics may vary every issue of the stock
and include the combination of two or more features. The special aspects of preferred shares are
recorded in a document called an indenture.
If a corporation is not attractive to potential investors, the preferred stock might need both the
cumulative and the fully participating features in order to sell. On the other hand, a successful blue

Preferred Stocks

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