The Stockholders’ Equity category of Jackson Company’s balance sheet as of January 1, 2017, appeared as follows: Preferred stock, $100 par, 8%, 2,000 shares issued and outstanding ………………$200,000 Common stock, $10 par, 5,000 shares issued and outstanding ……………………….50,000 Additional paid-in capital ……………………………………………………………300,000 Total contributed capital ……………………………………………………………$550,000 Retained earnings ……………………………………………………………………400,000 Total stockholders’ equity ………………………………………………………….$950,000 The notes that accompany the financial statements indicate that Jackson has not paid dividends for the two years prior to 2017. On July 1, 2017, Jackson declares a dividend of $100,000 to be paid to preferred and common stockholders on August 1. Required 1. Determine the amounts of the dividends to be allocated to preferred and common stockholders assuming that the preferred stock is noncumulative, nonparticipating stock. 2. Identify and analyze the effect of the transactions on July 1 and August 1, 2017. 3. Determine the amounts of the dividends to be allocated to preferred and common stockholders assuming instead that the preferred stock is cumulative, nonparticipating stock. View Solution: The Stockholders Equity category of Jackson Company s balance sheet as
January 3, 2018
(a) Prepare a statement of the incremental cash flows arising from the purchase of the new equipment.
January 3, 2018
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a.) What is IBM’s levered beta?

Finance Basics

P15.1 Levered Beta
If IBM had an upper-marginal tax rate of 40%, financed itself with 30% debt (relative to 70% equity),
and had an unlevered beta of 1.25. Also suppose that the prevailing risk-free rate is 4% and the return of
the market average is 10%.
a.) What is IBM’s levered beta?
b.) What is IBM’s unlevered cost of equity?
c.) What is IBM’s levered cost of equity?
d.) How much additional risk premium are investors requiring due to IBM’s additional, debt-based risk?
e.) Suppose that you were told the realized (levered) beta (from the marketplace) was 1.40, can you find
IBM’s (hypothetical) unlevered beta and, if so, what is it?
f.) How would increases in the following variables impact IBM’s equity costs?
i.] Unlevered beta
ii.] Upper Marginal Tax Rate
iii.] Weight of Debt
iv.] Wight of Equity

 

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