Question 1
1. According to the Week 5 lecture, why do most businesses fail within the first few years?
2. If an Accounts Receivable account is not eventually converted into cash, what happens to the amount of money in the account after a pre-determined period of time?
3. It’s possible to make a lot of sales, pay minimal expense, and still go bankrupt. True or False?
4. Most businesses practice Accrual Base or Cash Base Accounting?
5. What is the first step when reconciling your cash account/bank statement?
6. What is the second step when reconciling your cash account/bank statement?
7. What is the third step when reconciling your cash account/bank statement?
8. What is the fourth step when reconciling your cash account/bank statement?
9. How often should a reconciliation of the cash account occur?
10. If a client writes the company a bad check to pay for services/products, and you charge them an administrative fee to make sure the amount eventually gets paid. What type of account is credited?
Question 2
Scenario: Wilson Corporation (not real) has a targeted capital structure of 40% long term debt and 60% common stock. The debt is yielding 6% and the corporate tax rate is 35%. The common stock is trading at $50 per share and next year’s dividend is $2.50 per share that is growing by 4% per year.
Preparea minimum 700-word analysis including the following:
- Calculate the company’s weighted average cost of capital. Use the dividend discount model. Show calculations in Microsoft® Word.
- The company’s CEO has stated if the company increases the amount of long term debt so the capital structure will be 60% debt and 40% equity, this will lower its WACC. Explain and defend why you agree or disagree. Report how would you advise the CEO.
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