When should a company consider issuing debt instead of equity?

Answer:

Many fast-growing companies would prefer to use debt to support their growth, rather than equity, because it is, arguably, a less expensive form of financing (i.e., the rate of growth of the business's equity value is greater than the debt's borrowing cost).

Explanation:

Answer:

There could be many reasons, but probably the company reached its debt ceiling and is not able to borrow anymore (at acceptable conditions), due to low net cash flow relative to debt service, or low available collateral, or both.

Larger expansions or risky undertakings would also be more likely financed by equity - the expansion might require taking on more debt than the company is currently able to service, and the creditors are not sure if it will also bring sufficient additional EBITDA to service large debt. Similar thing with risky business proposals - it is more logical to finance them through equity, where investors share the hard-to-predict benefits as well as potential losses. If they were to be financed by debt, the loan should in theory carry very high interest to make up for the risk profile of the endeavor. Better to make it an equity investment.

Also, issuing equity improves your balance sheet and enables you to take on more debt. Having more equity could also mean cheaper debt (better interest rates). Debt is considered “senior” to equity, in theory losses should hit investors first and creditors later, so having a larger equity cushion means lower credit risk.

If the company suffered some hard times, they are already starved for cash and on top of that creditors would likely want to reduce their exposure - a perfect storm that could put the company out of business due to lack of liquidity, even when the business model is good in the long term (but who has a crystal ball, eh?). Raising more equity may be their only option.

Part E14 is used by M Corporation to make one of its products. A total of 19,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity: Per Unit Direct materials $ 4.10 Direct labor $ 8.70 Variable manufacturing overhead $ 9.20 Supervisor's salary $ 4.60 Depreciation of special equipment $ 3.00 Allocated general overhead $ 8.20 An outside supplier has offered to make the part and sell it to the company for $29.50 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including the direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally. In addition, the space used to make part E14 could be used to make more of one of the company's other products, generating an additional segment margin of $31,000 per year for that product. The annual financial advantage (disadvantage) for the company as a result of buying part E14 from the outside supplier should be:

The following general ledger accounts and additional information are taken from the records of Wolfe Corporation at the end of its fiscal year, December 31, 2019 Additional information:
a. The prepaid insurance is for a one-year policy, effective July 1, 2019.
b. A physical count indicated that $500 of supplies is still on hand.
c. $50 of December rent expense has not been recorded.
101 Unused Supplies 173 Advertising Exp. 610 Bal 700 Bal. 200 Cash Bal 2,700 Accounts Receivable110 Bal. 2,000 Common Stock Bal 320 3,800 Salaries Expense 656 Bal. 4,500 161 654 Prepaid Insurance Bal. 1,200 Repair Revenue Bal 450 7,750 Rent Expense Bal. 250
Required:
1. Record all necessary adjusting entries in general journal format including general ledger account numbers. Assume the following account numbers: Insurance Expense: 631; Supplies Expense: 668.
2. Post the adjusting entries to T-accounts and calculate balances.
3. Prepare all closing entries in general Journal format. Include general ledger account numbers.
4. Post the closing entries to the applicable general ledger accounts.

K Company estimates that overhead costs...
K Company estimates that overhead costs for the next year will be $3,700,000 for indirect labor and $890,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. Of 125,000 direct labor hours are planned for this next year, what is the company's plantwide overhead rate?
a. $0.03 per direct labor hour
b. $36.72 per direct labor hour.
c. $2960 per direct labor hour
d. $712 per direct labor hour
e. $0.14 per direct labor hour

In preparing a company's statement of cash flows for the most recent year using the indirect method, the following information is available:
Net income for the year was $58,000
Accounts payable increased by $18,600
Accounts receivable decreased by $25,600
Inventories increased by $6,200
Depreciation expense was $31,800
Net cash provided by operating activities was:_________.

Nick’s Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $475,000, have a fifteen-year useful life, and have a total salvage value of $47,500. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues $ 240,000 Less operating expenses: Commissions to amusement houses $ 70,000 Insurance 45,000 Depreciation 28,500 Maintenance 30,000 173,500 Net operating income $ 66,500 Required: 1a. Compute the payback period associated with the new electronic games. 1b. Assume that Nick’s Novelties, Inc., will not purchase new games unless they provide a payback period of five years or less. Would the company purchase the new games?

Pace Company has the following plan information available for 2019: Month Total Sales January $166,000 February $150,000 March $136,000 April $182,000 May $152,000 June $135,000 July $110,000 The normal pattern of cash collections on sales is 10% in the month of the sale, 50% in the month following the sale and 40% in the second month following the sale. The expected total cash collections for May should be

The short-run elasticity of demand for gasoline sold at gasoline stations is 0.20. If terrorism causes the supply of gasoline to fall, resulting in a 5 percent drop in quantity, if other things remain the same, the price per gallon will increase by:___________

the common sources of secondary data in tourism research are

In June 2007 General Motors (GM) posted a price-earnings ratio of 9.84. If
the price of the stock at that time was $36 per share, which of the following
must have been true?
a. GMâs earnings per share was 3.66.
b. GMâs coupon payment was $35 per year.
c. GMâs dividend yield for the year was 26%.
d. GMâs revenues that month were $366 million.

An outside supplier offers to provide Factor with all the units it needs at $44.45 per unit. If Factor buys from the supplier, the company will still incur 70% of its overhead. Factor should choose to:

At December 31, 2020, Suffolk Corporation had an estimated warranty liability of $105,000 for accounting purposes and $0 for tax purposes. (The warranty costs are not deductible until paid.) The effective tax rate is 20%. Compute the amount Suffolk should report as a deferred tax asset at December 31, 2020.

Baskin's pretax accounting income in Year 2 is $100,000. Baskin received cash rental payments in advance for $20,000 in Year 1 and $30,000 in Year 2, which are taxed in the year of receipt. It is expected the rent will be recognized for financial reporting purposes as $25,000 in Year 3 and $25,000 in Year 4. The income tax rate is 40%. What is Baskin's tax basis for rental revenues in Year 2

Craig Company asks you to review its December 31, 2014, inventory values and prepare the necessary adjustments to the books. The following information is given to you. 1. Craig uses the periodic method of recording inventory. A physical count reveals $234,890 of inventory on hand at December 31, 2014.2. Not included in the physical count of inventory is $13,420 of merchandise purchased on December 15 from Browser. This merchandise was shipped f.o.b. shipping point on December 29 and arrived in January. The invoice arrived and was recorded on December 31.3. Included in inventory is merchandise sold to Champy on December 30, f.o.b. destination. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale on account for $12,800 on December 31. The merchandise cost $7,350, and Champy received it on January 3.4. Included in inventory was merchandise received from Dudley on December 31 with an invoice price of $15,630. The merchandise was shipped f.o.b. destination. The invoice, which has not yet arrived, has not been recorded.5. Not included in inventory is $8,540 of merchandise purchased from Glowser Industries. This merchandise was received on December 31 after the inventory had been counted. The invoice was received and recorded on December 30.6. Included in inventory was $10,438 of inventory held by Craig on consignment from Jackel Industries.7. Included in inventory is merchandise sold to Kemp f.o.b. shipping point. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale for $18,900 on December 31. The cost of this merchandise was $10,520, and Kemp received the merchandise on January 5.8. Excluded from inventory was a carton labeled "Please accept for credit." This carton contains merchandise costing $1,500 which had been sold to a customer for $2,600. No entry had been made to the books to reflect the return, but none of the returned merchandise seemed damaged.Craig Company asks you to review its December 31, 1. Determine the proper inventory balance for Craig Company at December 31, 2014.Inventory balance as on December 31, 2014 2. Prepare any correcting entries to adjust inventory to its proper amount at December 31, 2014. Assume the books have not been closed.

Miscavage Corporation has two divisions: the Beta Division and the Alpha Division. The Beta Division has sales of $325,000, variable expenses of $159,600, and traceable fixed expenses of $72,800. The Alpha Division has sales of $635,000, variable expenses of $345,800, and traceable fixed expenses of $135,900. The total amount of common fixed expenses not traceable to the individual divisions is $138,200. What is the company's net operating income?

Pina Colada Corp. does not ring up sales taxes separately on the cash register. Total receipts for February amounted to $Unresolved. If the sales tax rate is 6%, what amount must be remitted to the state for February's sales taxes

The standard amount of materials required to make one unit of Product Q is 4 pounds. Tusa's static budget showed a planned production of 6,200 units. During the period, the company actually produced 6,300 units of product. The actual amount of materials used averaged 3.9 pounds per unit. The standard price of material is $2 per pound. Based on this information, the materials usage variance was:\

If there is a greater quantity supplied than the quantity demaded ( an excess supply of a good or service) you are most likely dealing with:_______.
A- price ceiling set below the equilibrium price
B- price floor set above equilibrium price

Other things equal, compared to using the first-in-first-out (FIFO) inventory cost method, using the last-in-first-out (LIFO) method in a rising price environment will result in a higher:____________
A. quick ratio.
B. inventory turnover ratio.
C. gross profit margin.

Harley-Davidson is a leading manufacturer of heavy-weight motorcycles. For each of the following recent transactions, indicate whether net cash inflows (outflows) from operating activities, investing activities, or financing activities are affected and whether the effect is an inflow or outflow, or use No effect if the transaction has no effect on cash. (Hint: Determine the journal entry recorded for the transaction. The transaction affects net cash flows if and only if the account Cash is affected.)

If the amount of beachfront land in Malibu supplied to the market remains the same even when the price of beachfront land in Malibu increases, the:_________.
a. demand for beachfront land in malibu must be perfectly inelastic,
b. supply of beachfront land in Malibu must be perfectly elastic.
c. demand for beachfront land in Malibu must be perfectly elastic.
d. supply of beachfront land in Malibu must be perfectly inelastic.

On January 1, 2018, the Highlands Company began construction on a new manufacturing facility for its own use. The building was completed in 2019. The company borrowed $2,350,000 at 9% on January 1 to help finance the construction. In addition to the construction loan, Highlands had the following debt outstanding throughout 2018: $7,000,000, 14% bonds $3,000,000, 9% long-term note Construction expenditures incurred during 2018 were as follows: January 1 $ 960,000 March 31 1,560,000 June 30 1,232,000 September 30 960,000 December 31 760,000 Required: Calculate the amount of interest capitalized for 2018 using the specific interest method. (Do not round the intermediate calculations. Round your percentage answers to 1 decimal place (i.e. 0.123 should be entered as 12.3%).)

A cash register tape shows cash sales of $3180 and sales taxes of $210. The journal entry to record this information is

Lisa Company had 100 units in beginning inventory at a total cost of $10,000. The company purchased 200 units at a total cost of $26,000. At the end of the year, Lisa had 85 units in ending inventory.
Compute the cost of the ending inventory and the cost of goods sold under FIFO, LIFO, and average-cost. (Round average-cost per unit and final answers to 0 decimal places, e.g. 1,250.)
The cost of the ending inventory
$ FIFO
$ LIFO
$ Average-cost
The cost of goods sold
$ FIFO
$ LIFO
$ Average-cost

Harry has worked as a general manager at Gringard, a supply chain management firm, for eleven years of his professional life. Gringard is a company that still follows a traditional business model and has not significantly changed its human resource management and talent development processes. Harry is now joining Alivron Inc., a company that focuses on a customer-driven supply chain approach. Which of the following is a change Harry should expect to find in his new company?

a. He should expect Alivron to emphasize strong operational skills rather than cross-functional collaboration skills.
b. He wil most likely need to move from following an agile approach to an analytical approach.
c. He will most likely need to work variable shifts so that he can connect with all his team members.
d. He should expect Alivron's distribution centers to run only two shifts Monday through Friday.

People with expertise tend to have more influence using ___, whereas those with a strong legitimate power base are usually more successful applying ___.
A. upward appeal; persuasion
B. silent authority; coalition formation
C. persuasion; silent authority
D. silent authority; assertiveness
E. information control; persuasion

] Widget manufacturing Company began operations on January 1. All sales are on credit. Widget has sales budgeted as $160,000 for January and $290,000 for February. Accounts Receivable collections are expected to be 60% in the month of sale, 30% the next month, and 10% in the third month. Use this information to determine the dollar value of February Expected Cash Collections from Customers. Enter as a whole number (no cents). g

Other things equal, diversification is most effective when Group of answer choices Securities returns are uncorrelated. Securities' returns are high. Both securities' returns are positively correlated and securities' returns are high. Securities' returns are positively correlated. You hold equal proportions of each security in a portfolio.

ABC Industries is a division of a major corporation. Data concerning the most recent year appears below:
Sales $18,080,000
Net operating income $940,160
Average operating assets $4,810,000
The division's return on investment (ROI) is closest to:____.
a. 5.60%.b. 20.56%.c. 16.71%.d. 2.60%.

Tri Fecta, a partnership, had revenues of $364,000 in its first year of operations. The partnership has not collected on $46,700 of its sales and still owes $38,000 on $175,000 of merchandise it purchased. There was no inventory on hand at the end of the year. The partnership paid $33,100 in salaries. The partners invested $48,000 in the business and $27,000 was borrowed on a five-year note. The partnership paid $2,430 in interest that was the amount owed for the year and paid $8,900 for a two-year insurance policy on the first day of business. Ignore income taxes.Compute the net income for the first year for Tri Fecta
A. $189,000
B. $155,900
C.$149,020
D.$233,430

When Get the Glare Out needed some information about the potential market for its product, the marketing team looked to the Internet to find industry trends and at the market for eyewear products, which uses the same technology that is used in its self-darkening windshield. The type of information the marketing team was using is referred to as Multiple Choice surveys. focus groups. primary data. secondary data.