Please prepare a simple balance sheet for The BBQ Company a )before and b )after
ID: 2754013 • Letter: P
Question
Please prepare a simple balance sheet for The BBQ Company a)before and b)after the change in capital structure.
The company currently has total assets of $12,000,000. They want to expand with an additional plant in West Palm Beach at a cost of $5,000,000. The new operation will be financed in its entirety with preferred equity from Miramar Trust.
Miramar Trust will receive a $4 dividend on each share of its preferred stock of $50.00. The equity of the company is 40% with an annual cost of 4%, 50% of the original capital structure is in debt with a rate of 8% and the remainder is in preferred equity at the same rate as of the new preferred stock and also held by Miramar Trust.
Calculate the WACC c) before and d)after the expansion.
e) How many shares will Miramar Trust hold in The BBQ company?
Explanation / Answer
Answer:(a) Balance sheet before the change in capital structure:
Answer:(b) Balance sheet after the change in capital structure:
Answer:c WACC before the change
WACC=Kd*Wd+Ke*We
=8%*0.50+4%*0.50
=6%
Answer:(d) WACC after the change in capital structure:
WACC=Kd*Wd+Ke*We+Kp*Wp
=8*0.50+4%*0.40+8%*0.10
=4%+3.2%+0.8%
=8%
Kp=4/50=8%
Answer:(e) Equity shares=6000000/100=60000 shares
Preference share=5000000/50=100000 shares
Balance sheet Liabilities and stock holder's equity Amount ($) Assets Amount ($) Equity 6000000 Total Assets 12000000 Debt 6000000 Total 12000000 Total Assets 12000000Related Questions
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