pennygillbert

12.10.2021 • 

Business

Completing a Balance Sheet and Inferring Net Income Carlos Ramirez and Camila Garza organized New World Book Store as a corporation; each contributed $80,000 cash to start the business and received 4,000 shares of common stock. The store completed its first year of operations on December 31, 2014. On that date, the following financial items for the year were determined: December 31, 2014, cash on hand and in the bank, $75,600; December 31, 2014, amounts
due from customers from sales of books, $39,000; unused portion of store and office equipment, $73,000; December 31, 2014, amounts owed to publishers for books purchased, $12,000; one-year note payable to a local bank for $3,000. No dividends were declared or paid to the stockholders during the year.
Required:
1. Complete the following balance sheet as of the end of 2014.
2. What was the amount of net income for the year? ( Hint: Use the retained earnings equation [ Beginning
Retained Earnings + Net Income - Dividends = Ending Retained Earnings] to solve for net income.)

Ответ:

kada96

08.05.2020

Business

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D. Home made Leverage

Explanation:

Home made leverage is a situation in which an investor utilizes borrowed funds to artificially adjust or change the level of leverage of a company. An Home made leverage can be used to turn an unleveraged company to a leveraged one.

One of the terms of home made leverages, however, is that, the investor who is borrowing to make a company leveraged must be able to borrow at the same borrowing cost of the firm.

Reason for Using Home Made Leverage

One of the main reasons is as stated in the question, which is to replicate a corporation's capital structure.

According to  Modigliani-Miller theorem, however, the home made leverage will only work smoothly for an investor as long as taxes and bankruptcy costs are absent and the market is efficient. This clause is the reason for the initial clause that home mode leverage works as long as the investor is able to borrow at the same borrowing cost as the firm.

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