When calculating the weighted average cost of capital, the costs of which of the following types of capital include a ($1 - T$) multiplier, where $T$ is the effective tax rate?

a. Debt capital

b. Equity capital

c. Both (a) and (b)

d. Neither (a) nor (b)

Harper Industries has $900 million of common equity on its balance sheet; its stock price is$80 per share; and its market value added (MVA) is $50 million. How many common shares are currently outstanding?

The following financial statement data is from five separate companies:

Required
1. Answer the following questions about Company A:
a. What is the amount of equity on December 31, 2010?
b. What is the amount of equity on December 31, 2011?
c. What is the amount of liabilities on December 31, 2011?
2. Answer the following questions about Company B:
a. What is the amount of equity on December 31, 2010?
b. What is the amount of equity on December 31, 2011?
c. What is net income for year 2011?
3. Calculate the amount of assets for Company C on December 31, 2011.
4. Calculate the amount of owner investments for Company D during year 2011.
5. Calculate the amount of liabilities for Company E on December 31, 2010.

Describe the entry to adjust from cost to net realizable value for inventory write-downs. What effects does this adjustment have on (a) assets, (b) liabilities, (c) stockholders' equity (or retained earnings), (d) revenues, (e) expenses, and (f) net income?

For each of the following, (I) identify the account as an asset, liability, equity, revenue, or expense; (2) identify the normal balance of the account; and (3) enter debit or credit to identify the kind of entry that would increase the account balance.

h. Unearned Revenue

Determine whether each of the following changes in profitability ratios normally is good news or bad news about a company. a. Increase in profit margin. b. Decrease in asset turnover. c. Decrease in return on equity. d. Increase in the price-earnings ratio.

Investments in equity securities are deemed to be ‘‘passive’’ if:

a. less than 20% of the firm’s stock is owned.

b. between 20% and 50% of the firm’s stock is owned.

c. between 50% and 100% of the firm’s stock is owned.

d. 100% of the firm’s stock is owned.

For each of the following, (I) identify the account as an asset, liability, equity, revenue, or expense; (2) identify the normal balance of the account; and (3) enter debit or credit to identify the kind of entry that would increase the account balance.

k. Notes Payable

Currently, Bloom Flowers Inc. has a capital structure consisting of $20 \%$ debt and $80 \%$ equity. Bloom's debt currently has an $8 \%$ yield to maturity. The risk-free rate $\left(\mathrm{r}_{\mathrm{RF}}\right)$ is $5 \%$, and the market risk premium $\left(\mathrm{r}_{\mathrm{M}}-\mathrm{r}_{\mathrm{RF}}\right)$ is $6 \%$. Using the CAPM, Bloom estimates that its cost of equity is currently $12.5 \%$. The company has a $40 \%$ tax rate.

a. What is Bloom's current WACC?

b. What is the current beta on Bloom's common stock?

c. What would Bloom's beta be if the company had no debt in its capital structure? (That is, what is Bloom's unlevered beta, $b_U$?)

Bloom's financial staff is considering changing its capital structure to $40 \%$ debt and $60 \%$ equity. If the company went ahead with the proposed change, the yield to maturity on the company's bonds would rise to $9.5 \%$. The proposed change will have no effect on the company's tax rate.

d. What would be the company's new cost of equity if it adopted the proposed change in capital structure?

e. What would be the company's new WACC if it adopted the proposed change in capital structure?

f. Based on your answer to part e, would you advise Bloom to adopt the proposed change in capital structure? Explain.

At the beginning of the year, Morgan Company had total assets of $425,000 and total liabilities of$260,000.

Required:

If, during the year, total assets decreased by $52,000 and total stockholders’ equity increased by$35,000, what is the amount of total liabilities at the end of the year?

The stockholders’ equity section of Leyland Corporation’s balance sheet at December 31 is presented here.

$$\begin{array}{c} \textbf{LEYLAND CORPORATION}\\ \textbf{Balance Sheet (partial)}\\ \end{array}$$

$$\begin{array}{lrr} \text{Stockholders’ equity}\\ \qquad\text{Paid-in capital}\\ \qquad\qquad\text{Preferred stock, cumulative, 10,000 shares authorized,}\\ \qquad\qquad\qquad\text{6,000 shares issued and outstanding}&\text{\$\hspace{7pt}600,000}\\ \qquad\qquad\text{Common stock, no par, 750,000 shares authorized,}\\ \qquad\qquad\qquad\text{580,000 shares issued}&\underline{\text{\hspace{6pt}2,900,000}}\\ \qquad\qquad\qquad\text{Total paid-in capital}&\text{\hspace{1pt}3,500,000}\\ \qquad\text{Retained earnings}&\underline{\text{\hspace{6pt}1,158,000}}\\ \qquad\text{Total paid-in capital and retained earnings}&\text{\hspace{1pt}4,658,000}\\ \qquad\text{Less: Treasury stock (6,000 common shares)}&\underline{\text{\hspace{19pt}32,000}}\\ \text{Total stockholders’ equity}&\underline{\underline{\text{\$\hspace{1pt}4,626,000}}}\\ \end{array}$$

Instructions

From a review of the stockholders’ equity section, answer the following questions.

(c) What is the par value of the preferred stock?

The following financial statement information is from five separate companies.

Required
1. Answer the following questions about Company V.
 a. What is the amount of equity on December 31, 2009?
 b. What is the amount of equity on December 31, 2010?
 c. What is the net income or loss on December 31, 2010?
2. Answer the following questions about Company W.
 a. What is the amount of equity on December 31, 2009?
 b. What is the amount of equity on December 31, 2010?
 c. What is the amount of liabilities for year 2010?
3. Compute the amount of owner investments for Company X during year 2010.
4. Compute the amount of liabilities for Company Y on December 31, 2009.
5. Compute the amount of assets for Company C on December 31, 2010.

When a person borrows money to buy a house, the secured loan the bank issues is a mortgage. The house serves as the security the bank needs to justify the risk of loaning money. If a homeowner takes out another loan on the same house, the secured loan is a second mortgage. Some homeowners use their homes as collateral to get a home equity loan. In 2006, there were $51,234,170$ houses used as collateral for mortgages or home equity.

How many homeowners have only taken a first mortgage?

At the beginning of the year, Morgan Company had total assets of $425,000 and total liabilities of$260,000.

Required:

If, during the year, total assets increased by $73,000 and total liabilities increased by$32,000, what is the amount of total stockholders’ equity at the end of the year?