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EFM-10problem

# EFM-10problem - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17...

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10problem 3/22/2010 7:08 12/14/2005 Chapter 10. Solution to End-of-Chapter Comprehensive/Spreadsheet Problem Problem 10-21 Here is the condensed 2005 balance sheet for Skye Computer Company (in thousands of dollars): CONDENSED BALANCE SHEET FOR SKYE COMPUTER COMPANY % Capital Structure % incl. curr. liab. % excl. current liab. 2005 Current assets \$2,000 Net fixed assets 3,000 Total assets \$5,000 Current liabilities \$900 18.0% Long-term debt 1,200 24.0% 29.3% Preferred stock 250 5.0% 6.1% Common stock 1,300 Retained earnings 1,350 Total common equity \$2,650 53.0% 64.6% Total liabilities & equity \$5,000 100.0% 100.0% Skye's earnings per share last year were \$3.20; the common stock sells for \$55, last year’s dividend was \$2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at a rate of 9% per year. Skye's preferred stock pays a dividend of \$3.30 per share, and new preferred could be sold at a price to net the company \$30 per share. The firm can issue long-term debt at an interest rate (or before-tax cost) of 10%, and its marginal tax rate is 35%.

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