The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan's current capital structure calls for 50 percent debt, 30 percent preferred stock, and 20 percent common equity. Initially, common equity will be in the form of retained earnings and then new common stock . The costs of the various sources of financing are as follows: debt, percent; preferred stock, 9 percent; retained earnings, 10 percent; and new common stock, percent. If the firm has million in retained earnings, at what size capital structure will the firm run out of retained earnings?
Helga Ander began a new business and completed these transactions during December.
Dec. 1 Helga Ander transferred $65,000 cash from a personal savings account to a checking account in the name of Ander Electric.
2 Rented office space and paid$1,000 cash for the December rent.
3 Purchased $13,000 of electrical equipment by paying$4,800 cash and agreeing to pay the $8,200 balance in 30 days.
5 Purchased office supplies by paying$800 cash.
6 Completed electrical work and immediately collected $1,200 cash for the work.
8 Purchased$2,530 of office equipment on credit.
15 Completed electrical work on credit in the amount of $5,000.
18 Purchased$350 of office supplies on credit.
20 Paid $2,530 cash for the office equipment purchased on December 8.
24 Billed a client$900 for electrical work completed.
28 Received $5,000 cash for the work completed on December 15.
29 Paid the assistant's salary of$1,400 cash for this month.
30 Paid $540 cash for this month's utility bill.
31 Ander withdrew$950 cash for personal use.
1. Organize the following asset, liability, and equity titles in a table like Exhibit 2.1: Cash; Accounts Receivable; Office Supplies; Office Equipment; Electrical Equipment; Accounts Payable; H. Ander, Capital; H. Ander, Withdrawals; Revenues; and Expenses.
2. Use additions and subtractions to show the effects of each transaction on the accounts in the account- ing equation. Show new balances after each transaction.
3. Use the increases and decreases in the columns of the table from part 2 to prepare an income statement and a statement of owner's equity for the month. Also prepare a balance sheet as of the end of the month.