# CBA Inc has 400,000 shares outstanding with a \$5 par value. The shares were issued for \$12. The stock is currently selling for \$34. CBA has \$5,000,000 in retained earnings and has declared a stock dividend that will increase the number of outstanding shares by 6%. How many shares will be outstanding after the stock dividend?

The number of shares that will be outstanding after the stock dividend is 424,000 shares.

Explanation:

This can be calculated as follows:

Number of shares outstanding before the stock dividend = 400,000

Percentage increase in the number of outstanding shares after stock dividend = 6%

Number of increase in the number of outstanding shares after stock dividend = Number of shares outstanding before the stock dividend * Percentage increase in the number of outstanding shares after stock dividend = 400,000 * 6% = 24,000

Therefore, we have:

Number of shares outstanding after the stock dividend = Number of shares outstanding before the stock dividend + Number of increase in the number of outstanding shares after stock dividend = 400,000 + 24,000 = 424,000

Therefore, the number of shares that will be outstanding after the stock dividend is 424,000 shares.

After a 6% stock dividend, CBA Inc will have 424,000 shares outstanding. A stock dividend increases the number of shares but doesn't change the overall worth of the company.

### Explanation:

CBA Inc currently has 400,000 shares outstanding. When a company declares a stock dividend, it increases the number of shares outstanding. In this case, the company is declaring a dividend that will increase the total shares by 6%. Therefore, to find the total shares after the dividend you multiple the current shares by 1.06 (the 1 accounts for the original amount and the 0.06 for the increase).

So, 400,000 shares * 1.06 = 424,000 shares

A key point to remember is that a stock dividend does not change the overall worth of the company, it simply divides the total value over more shares. Therefore, while the number of shares has increased, the value per share would decrease assuming the total value of the company remains the same.

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## Related Questions

On January 1, Year 1, Milton Manufacturing Company purchased equipment with a list price of \$88,000. A total of \$4,000 was paid for installation and testing. During the first year, Milton paid \$6,000 for insurance on the equipment and another \$2,200 for routine maintenance and repairs. Milton uses the units-of-production method of depreciation. Useful life is estimated at 100,000 units, and estimated salvage value is \$8,000. During Year 1, the equipment produced 13,000 units. What is the amount of depreciation for Year 1?

The depreciation expense for Year 1 is \$9880

Explanation:

The cost of equipment to be recorded in the books is the price at which it was purchased and the cost incurred to bring it to intended use that is the installation cost. Thus, the cost of the equipment in the books will be recorded as,

Equipment = 88000 + 4000 = \$84000

The insurance and maintenance are recurring expenses and are not capitalized.

The depreciation rate under units of production method is,

Depreciation rate = (cost - salvage value) / estimated useful life in units

Depreciation rate = (84000 - 8000) / 100000  =  \$0.76 per unit

The depreciation expense for Year 1 = 0.76 * 13000 = \$9880

\$10,920

Explanation:

Cost of equipment = List price of equipment + Cost of installation and testing

\$88,000 + \$4,000 = \$92,000

Salvage value = \$8,000

Depreciation cost of equipment = Cost of equipment - salvage value

\$92,000 - \$8,000 = \$84,000

Estimated unit of production = 100,000 units

Year 1 units produced = 13,000 units

Depreciation = \$84,000 * 13,000 / 100,000

= \$10,920

E-Eyes Bank just issued some new preferred stock. The issue will pay a \$9 annual dividend in perpetuity, beginning 6 years from now. If the market requires a 6 percent return on this investment, how much does a share of preferred stock cost today

Explanation:

Calculation to determine future sales discounts

Using this formula

Value of Preferred Stock in year 5 =Annual Dividend/Required Rate

Let Plug in the formula

Value of Preferred Stock today =(6/6%)/(1+6%)^5

Value of Preferred Stock today =100/(1+6%)^5

=124.58

Quantitative Problem 2: Carlysle Corporation has perpetual preferred stock outstanding that pays a constant annual dividend of \$1.90 at the end of each year. If investors require an 7% return on the preferred stock, what is the price of the firm's perpetual preferred stock? Do not round intermediate calculations. Round your answer to the nearest cent. \$ per share

\$27.14

Explanation:

Calculation for the price of the firm's perpetual preferred stock

Using this formula

Price of the firm perpetual preferred stock = Annual dividend / Required return

Where,

Annual dividend =\$1.90

Required return=7% or 0.07

Let plug in the formula

Price of the firm perpetual preferred stock = \$1.90 / 0.07

Price of the firm perpetual preferred stock=\$27.14

Therefore the Price of the firm perpetual preferred stock will be \$27.14

Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost \$100 million, and will produce net cash flows of \$28 million per year. Plane B has a life of 10 years, will cost \$132 million, and will produce net cash flows of \$27 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares are expected to be zero, and the company's cost of capital is 9%. By how much would the value of the company increase if it accepted the better project (plane)

41.28 million

Explanation:

the net present value of the two alternatives needs to be determined. The appropriate alternative would be the plane with the higher NPV

Net present value is the present value of after-tax cash flows from an investment less the amount invested.

NPV can be calculated using a financial calculator

Alternative 1

Cash flow in year 0 = \$-100 million

Cash flow each year from year 1 to 5 =  \$28 million

I = 9%

NPV = \$8.91 million

Alternative 2

Cash flow in year 0 = \$-132 million

Cash flow each year from year 1 to 10 =  \$27 million

I = 9%

NPV = \$41.28 million

The second alternative has the higher NPV and it would increase the value of the company by \$41.28 million if accepted

To find the NPV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

The question involves determining the Net Present Value (NPV) of each plane's cash flows, discounted at the company's cost of capital. The plane that provides the higher NPV should be selected, with the difference in the two NPV's representing the use value increase for the company.

### Explanation:

To decide which project Shao Airlines should accept, we need to determine the Net Present Value (NPV) of each project. The NPV is the sum of the present values of all cash flows associated with a project, discounted at the firm's cost of capital.

For Plane A, the NPV is calculated over its expected life of 5 years. Using the formula for NPV, we get:

NPV A = (\$28 million / (1.09)^1) + (\$28 million / (1.09)^2) + (\$28 million / (1.09)^3) + (\$28 million / (1.09)^4) + (\$28 million / (1.09)^5) - \$100 million

Similarly, Plane B's NPV is calculated over 10 years. Since Shao Airlines plans to serve the route for only 10 years, it means Plane A will have to be purchased twice. Therefore, a similar NPV formula applies, but for 10 years and accounting for the double cost:

NPV B = 2 × [(\$27 million / (1.09)^1) + (\$27 million / (1.09)^2) + ... + (\$27 million / (1.09)^10)] - 2×\$132 million

The project with the higher NPV should be accepted, and its NPV relative to the alternative represents the value increase for the company.

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Apply What You’ve Learned - Managing Credit Cards and ConsumerLoansScenario: You are 30 years old, married, have two children, and household income (take-home pay) of\$3,500 per month. Your credit and consumer debt is as follows:_______.
• Car loan, 6% interest rate, \$10,000 balance, \$295 per month
• Department store card, 28% interest rate, \$600 balance, minimum payment 5% of balance
• Discover Card, 12% interest rate, \$2,000 balance, minimum payment 2% of balance
• VISA Card, 13% interest rate, \$3,000 balance, minimum payment 2% of balance
• MasterCard 1, 14% interest rate, \$4,000 balance, minimum payment 2% of balance
• MasterCard 2, 14% interest rate, \$0 balance, minimum payment 2% of balance
• Gasoline card, 21% interest rate, \$300 balance, minimum payment 5% of balance
Assume all credit cards will assess a \$35 late fee and ongoing penalty interest of 8% above the currentrate if you miss a payment. Your recent VISA card statement came with a blank cash advance check(for up to \$10,000) with terms of 23.99% APR and a fee of 3% if you use it. Your recent MasterCard 2statement came with a balance transfer oFer (up to \$4,000) with no fee and 0% APR for 12 months,after which the normal interest rate applies. You recently found an incorrect amount charged on yourVISA card from a store you frequent often. You’d like to come up with a plan to eliminate all of yourcredit card debt.
In general, is it a good idea to make only minimum payments on your credit cards?
Yes, you can invest the money saved each month to earn interest.
No, it will cause your interest rate to go up.
No, the small payment requirement is mathematically guaranteed to keep you in debt for manyyears.
Yes, this allows you more ±exibility in your cash budget.
Assuming you have \$1,500 in your budget this month with which to pay down your credit cards, howmuch should you pay on each card?
CardInterestrateOutstandingRequired minimumRecommendedbalancepayment(%)payment(\$)debtrepaymentamount
store card
Discover Card12%2,0008%
VISA Card13%3,00010%
MasterCard 114%4,0008%
MasterCard 214%010%
Gasoline card21%30015%
Total\$9,900\$1,500

1) In general, is it a good idea to make only minimum payments on your credit cards?

• No, the small payment requirement is mathematically guaranteed to keep you in debt for many years.

All you have to do is analyze the interest rates charged by the credit card companies and it is really difficult for any investment to match those interest rates.

2) Assuming you have \$1,500 in your budget this month with which to pay down your credit cards, how much should you pay on each card?

I would start with the cards that charge the highest interest rates. I would pay the full balance of the department store card and the gasoline card = \$600 + \$300 = \$900

Since I have \$600 left, I would then pay the minimum payments for the cards that charge the least interest rates. I would pay \$40 to Discover card and \$60 to VISA.

The remaining \$500 would be used to pay MasterCard 1 card and lower its balance.

It's not best practice to only make minimum payments on credit cards, as it results in long-term debt due to the compounding of interest. Prioritize your \$1,500 payment towards cards with higher interest rates first and consider using the balance transfer offer on MasterCard 2 judiciously.

### Explanation:

This question pertains to managing credit cards and consumer loans. In this specific scenario, it's generally not a good idea to only make minimum payments on credit cards. Only making minimum payments could keep you in debt for many years due to the compounding effect of interest.

To prioritize debt repayment with an available budget of \$1,500 to pay down on credit cards this month, you should start by paying off the credit card with the highest interest rate first. This strategy is known as the avalanche method. So, you would begin with the Department store card (28% interest rate) and gasoline card (21% interest rate), and then move on to MasterCard 1 (14% interest rate), VISA card (13% interest rate), and Discover Card (12% interest rate).

The balance transfer offer from MasterCard 2 could be beneficial. As it offers a 0% APR for 12 months, you could transfer some of the balance from the cards with high interest rates to MasterCard 2. However, this should only be done if you are confident that you can pay off the transferred balance within the promotional period of 12 months, as otherwise, interest would revert to the regular rate.

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An important function of the U.S. Federal Reserve is to a. set the debt ceiling. b. control the supply of money. c. mint coins. d. fund Congressional spending.

b. control the supply of money.

Explanation:

The Federal Reserve System ( popularly referred to as the 'Fed') was created by the Federal Reserve Act, passed by Congress in 1913, and began operations in 1914. It is just like all central banks, the Federal Reserve is a United States government agency. The following are the responsibilities of the Fed Reserves System;

- It has the power to supervise and regulate banks.

- They promote public goals such as economic growth, low inflation, and the smooth operation of financial markets (monetary policies).

- The Federal Reserve is the "lender of last resort."

Hence, an important function of the U.S. Federal Reserve is to control the supply of money. The monetary liabilities of the Federal Reserve include currency in circulation and reserves. The currency in circulation includes all of the US paper currency (dollar bill) that are available in the country while reserves refers to the minimum deposits being held for the U.S Treasury and depository financial institutions by the Fed.