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problem1. Emirates Company signed a lease contract to employ a building for the next twenty five years. The lease contract needs payments of $66,001 to be made at the end of each and every year for the next twenty five years. When the building had been bought instead of leased, it would have cost $600,000. Since the payments are not made till the end of the year, no cash changed hands on the day the building was leased, which is also the day the company started using the building. This lease is accounted for as the operating lease. prepare down the journal entry necessary to record this transaction. When no entry is needed, select "no entry needed" from dropdown and leave the dollar entry box blank.

problem2. Capital Co. has a capital structure, which is based on current market values, that comprises 43 percent debt, 11 percent preferred stock as well as 46 percent common stock. If the returns needed by investors are 10 percent, 14 percent, and 12 percent for the debt, preferred stock, and common stock, correspondingly, what is Capital’s after-tax WACC? Suppose that the firm’s marginal tax rate is 40 percent.

problem3. Storico Co. just paid a dividend of $1.50 per share. The company will raise its dividend by 20 percent next year and will then diminish its dividend growth rate by 5 percentage points per year till it reaches the industry average of 5 percent dividend growth, after which the company will keep a stable growth rate forever. When the stock price is $34.10, what required return should investors is demanding on Storico stock? (Hint: Set up the valuation formula with all the relevant cash flows, and use trial and error to find out the unknown rate of return.)

Financial Accounting, Accounting

  • Category:- Financial Accounting
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