Masterson, Inc., has 4.4 million shares of common stock outstanding. The current share price is $89.50, and the book value per share is $11.25. The company also has two bond issues outstanding. The first bond issue has a face value of $81 million, a coupon rate of 5.1%, and sells for 96.5% of par. The second issue has a face value of $53 million, a coupon rate of 5.8%, and sells for 106.5% of par. The first issue matures in 25 years, the second in 9 years. The most recent dividend was $4.28 and the dividend growth rate is 5.3%. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semi-annual payments. The tax rate is 21%.
a. What are the company's capital structure weights on a book value basis?
b. What are the company's capital structure weights on a market value basis?
c. Which are more relevant, the book or market value weights?

Answer:

Masterson, Inc.

1. The company's capital structure weights on a book value basis are:

Book Value Weights:

Equity = 0.27 or 27%

Debts = 0.73 0r 73%

2. The company's capital structure weights on market value basis are:

Market Value Weights:

Equity = 0.75 or 75%

Debts = 0.25 or 25%

3. The market value weights of Masterson's common stock and debts are more relevant because they represent a more current valuation of the equity and the debts.  It is easier to calculate the book value weights since the information is more readily available within the entity than the information on market weights.

Explanation:

a) Data and Calculations:              

Equity                                     Units                     Total Value

Outstanding common stock  4.4 million shares

Current share price              $89.50                  $393.8 million

Book value per share           $11.25                    $49.5 million

Debt                                        Units                     Total Value

First bond:

 Face value                             81,000                   $81 million

 Market value                         81,000                    $78.165 million

Coupon rate =                         5.1%                       $4.131 million p.a.

Second bond:

 Face value                            53,000                   $53 million

 Market value                        53,000                   $54.445 million

Coupon rate =                        5.3%                      $2,809 million p.a.

Total book value of bonds    134,000                 $134 million

Total market value of bonds 134,000                 $132.61 million

Capital structure      Equity                    Bonds                 Total

Book value              $49.5 million          $134 million       $183.5 million

Market value           $393.8 million        $132.61 million  $526.41 million

Book Value Weights:

Equity = $49.5/$183.5 = 0.27 or 27%

Debts = $134/$183.5 = 0.73 0r 73%

Market Value Weights:

Equity = $393.8/$526.41 = 0.75 or 75%

Debts = $132.61/$526.41 = 0.25 or 25%

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Prepare the sales budget for the year.

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Date Payment
1/1 $300,000
4/1   620,000
8/1   460,000
10/1   300,000
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Determine the amount of interest to be capitalized.

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2. Potential customers are not clicking on their ad and are instead clicking on the ads of their competitors.
3. Potential customers are clicking on their ad and the company's website is holding their interest enough for them to explore other page links.
4. The company's website ranks high in a search engine's unpaid results.
5. The company has successfully engaged customers to pass along information to other potential customers.

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Expenses
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Unavoidable 53,000 14,400 4,500 31,200 11,900 115,000
Total expenses 64,300 52,600 27,800 46,700 52,400 243,800
Net income (loss) $1,700 $(14,600) $31,200 $(1,700) $(21,400) $(4,800)
Re-compute and prepare the departmental income statements (including a combined total column) for the company under each of the following separate scenarios.
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Instructions
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(b) Prepare the adjusting entry at December 31, 2007, to record subscription revenue earned in December 2007.
(c) Prepare the adjusting entry at March 31, 2008, to record subscription revenue earned in the first quarter of 2008.

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Select an answer:
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• adapting or modifying a concept to address one of the four enablers (1)
• identifying data required to validate a concept
• ideating to establish the antithesis of the design concept

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Determine the depreciation base of Cominsky’s new machine. Cominsky uses straight-line depreciation.
Depreciation base $
Entry field with incorrect answer now contains modified data

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a. I, II, and III.
b. I only.
c. I and II.
d. II only.
e. I and III.

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b. 44,000.
c. 50,000.
d. 63,000.

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Instructions:
Determine the depreciation expense for 2017.

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General Purpose Flexible Manufacturing Dedicated
Equipment System Machine
GPE FMS DM
Annual contracted units 200,000 200,000 200,000
Annual fixed cost $100,000 $200,000 $500,000
Per unit variable cost $15 $14 $13
Which process is best for this contract?

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A.
a journal article titled “Marketing Strategies: Social Media” by a university professor

B. an article titled “Tips for Effective Social Media Marketing” on a government agency website
C. a social media post promoting a new product launched by a reputable business
D. a business magazine article titled “Why Social Media Marketing Works” by a journalist
E. a blog post titled “My Social Media Marketing Success” by an unknown author

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(a) Determine the value of HHI in each market before the merger.
(b) Assuming market shares of each firm remain constant, determine the value of HHI after the merger.
(c) Considering the values determined above and the DoJ merger guidelines, was the Department of Justice right in allowing the merger to take place?

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1. The cost of the land that should be recorded by Wilson Co. is:_____.
a. $989,880
b. $980,480
c. $996,280
d. $986,880
The cost of the building should be recorded by Wilson Co. is:_____.
a. 2,804,840
b. 2,813,200
c. 2,803,800
d. 3,014,240