Fashionista Skincare has 10,000 shares of 3%, $20 par value preferred stock and 90,000 shares $2 par common stock outstanding

P12-32A Computing dividends on preferred and common stock.

Fashionista Skincare has 10,000 shares of 3%, $20 par value preferred stock and 90,000 shares $2 par common stock outstanding. During a three-year period, Fashionista declared and paid cash dividends as follows: 2010, $3,000; 2011, $13,000; and 2012, $17,000.

Requirements:
Compute the total dividends to preferred and to common for each of the three years if
a. preferred is noncumulative.
b. referred is cumulative,
For requirement 1.b., journalize the declaration of the 2012 dividends on December 22, 2012, and payment on January 14,2013. Use separate Dividends payable accounts for preferred and common.


Click here for the solution: Fashionista Skincare has 10,000 shares of 3%, $20 par value preferred stock and 90,000 shares $2 par common stock outstanding

A company, has EBIT of $2,000,000, total assets of $20,000,000 preferred dividends of $250,000 and is taxed at a rate of 40%

A company, has EBIT of $2,000,000, total assets of $20,000,000 preferred dividends of $250,000 and is taxed at a rate of 40%. In an effort to determine the optimal capital structure, the firm has assembled data on the cost of debt, the number of shares of common stock for various levels of indebtedness, and the overall required return on investment.

Capital Structure debt ratio cost of debt, kd No. of common stock shares required return, ks
0.00% 0.00% 200,000 10.00%
15 8 170,000 11.00%
30 9 150,000 12.00%
45 12 110,000 14.00%
60 15 80,000 18.00%

Calculate earnings per share for each level of indebtedness. Use the grid for the answer
Debt Ratio 0.00% 15.00% 30.00% 45.00% 60.00%
EBIT
Less Interest
EBT
Taxes at 40%
Net Profit
Less Preferred Div
Profits avail. to Common Stockholders
Number of shares
EPS

Use the following equation P0 = EPS/ Rs (Po is the per share value, EPS is the earnings per share and Rs is the required return). Calculate the price per share for each level of indebtedness. Choose the best capital structure. Why?


Click here for the solution: A company, has EBIT of $2,000,000, total assets of $20,000,000 preferred dividends of $250,000 and is taxed at a rate of 40%

Parker Investments has EBIT of $20,000, interest expense of $3,000, and preferred dividends of $4,000

E13-4 Parker Investments has EBIT of $20,000, interest expense of $3,000, and preferred dividends of $4,000. If it pays taxes at a rate of 38%, what is Parker's degree of financial leverage (DFL) at a base level of EBIT of $20,000?

Click here for the solution: Parker Investments has EBIT of $20,000, interest expense of $3,000, and preferred dividends of $4,000

St. Joe Trucking has sold an issue of $6 cumulative preferred stock to the public at a price of $60 per share

St. Joe Trucking has sold an issue of $6 cumulative preferred stock to the public at a price of $60 per share. After issuance costs, St. Joe netted $57 per share. The company has a marginal tax rate of 40 percent.

a. Calculate the after-tax cost of this preferred stock offering assuming that this stock is a perpetuity.
b. if the stock is callable in 5 years at $66 per share and investors expect it to be called at that time, what is the after-tax cost of this preferred stock offering? (Compute to the nearest whole percent.)

Click here for the solution: St. Joe Trucking has sold an issue of $6 cumulative preferred stock to the public at a price of $60 per share

Spinone Corporation directs its sole shareholder to exchange all of his common stock valued at $200,000 (basis of $50,000) for $100,000 of common stock, $80,000 of preferred stock, and $20,000 in cash

Spinone Corporation directs its sole shareholder to exchange all of his common stock valued at $200,000 (basis of $50,000) for $100,000 of common stock, $80,000 of preferred stock, and $20,000 in cash. In addition, Spinone directs its sole bondholder to exchange her $150,000 of bonds paying 6.0% for $170,000 of bonds paying 5.3% How are these transactions treated for tax purposes by the shareholder, the bondholder, and Spinone?

Click here for the solution: Spinone Corporation directs its sole shareholder to exchange all of his common stock valued at $200,000 (basis of $50,000) for $100,000 of common stock, $80,000 of preferred stock, and $20,000 in cash