## Homework 13.1

 Author Message pls999 Forum Newbie Group: Forum Members Posts: 5, Visits: 1 For HW 13.1 part (E) and part (F).For part (E), what do they mean by original cash ?For part (F), the equity should be \$12.5 x 2M shares + \$17.5 x 1M shares =\$32.5 M or is it \$17.5 x 3M shares = \$52.5 M ? D Junior Member Group: Forum Members Posts: 23, Visits: 1 e) not sure, but I have \$43.5M (\$3M common stock+ \$1M net earning+\$39.5M surplus)f) \$52.5Md) I had to assume nothing is distributed as dividend. mcgowan04 Junior Member Group: Forum Members Posts: 16, Visits: 1 A) 3million shares outstandingB) I think I'm supposed to use shares outstanding?  so we get 3million * \$1.00C) Is this just for the additional shares sold in 20X7?  (1 million * \$17.50) - (1million * \$1.00)D) ????E) What's the original cash?  Earnings = 6 million, renovations = 5 million for the formula they suggested Original cash + earnings - renovation expensesF) does number of shares mean total number of shares or shares outstanding so we get 3 million * 17.50? D Junior Member Group: Forum Members Posts: 23, Visits: 1 A) correctB) correctC) additional paid-in capital = 2M @ \$12.5 + 1M @ \$17.5 - 3M = \$39.5MD) Like I said in my previous post, it did not specify what payout ratio (plowback ratio) is, so I just assumed that the company like to expand it's business in the near future.  In order to do that, the company retained 100% of it's earning for this purpose.Then retained earning = \$6MRetained earning on book = \$6M - \$5M =\$1ME) Book equity = \$3M + \$39.5M +(\$6M - \$5M) = \$43.5MF) Market equity = 3M @ \$17.5 = \$52.5M jen11 Forum Newbie Group: Forum Members Posts: 7, Visits: 1 Here is what I have:c) 12.5(2mil)-1(1mil)+17.5(1mil)-1(1mil) = 39.5 mild) 6mil - 5 mil = 1mile) 3mil + 39.5 mil + 1 mil = 43.5 milf) I agree with you, 17.5(3mil) = 52.5mil Jellybean1510 Forum Newbie Group: Forum Members Posts: 1, Visits: 1 For part d, do you not have to take into consideration the \$8M used to purchase the land? NereusRen Forum Newbie Group: Forum Members Posts: 2, Visits: 1 I believe the land asset counts towards the book equity with the same value that you purchased it at, so it cancels out. You lose \$8m in cash, but gain \$8m in land (which doesn't depreciate--that's the key part of the question).By contrast, the renovation doesn't result in a physical "renovation" asset that the company can say it holds... Therefore the \$5m cost for that is subtracted from book equity without being replaced by anything.That's how I see it, anyway. haohmaku Forum Newbie Group: Forum Members Posts: 2, Visits: 1 in e) 1 mill share is sold to get additional paid-in capital so I think we will make a mistake if we add it in book equity.So my answer is: cash in : 12.5x2 + 6 + 17.5cash out: 5 +1equity : 42.5 Jeffrey Forum Newbie Group: Forum Members Posts: 3, Visits: 1 part D) The definition of retained earnings is: earnings (from sale of stocks) that are not distributed as dividend. I do not see how this question make sense. If none of the cash is used in dividends, then retained earnings are 2 mill*12.50 + 1 mill*17.5 = \$42.5 mill regardless of what it was used for as investment. gouri525 Forum Newbie Group: Forum Members Posts: 1, Visits: 1 Retained earnings do not include sale of stocks. That would be capital. Retained earnings would be accumulated income. In this case, eacrnings  = 6 mil. Expenses = 5 mil, Therefore, retained earnings = 1 mil.
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