The Components of Matlock Ltd's Capital Structure and Their Related

question 50

Essay

The components of Matlock Ltd's capital structure and their related costs are as follows: $\begin{array}{lr}\text { Current liabilities } & \$ 200,000 \\\text { Long-term liabilities } & \$ 800,000^{1} \\\text { Preferred shares } & \$ 250,000^{2} \\\text { Common shares } & \$ 250,000^{3} \\\text { Retained earnings } & \$ 472,500 \\\text { Net income } & \$ 72,500\end{array}$
${ }^{1} \$ 64,000$ interest paid
$2 \$ 12,500$ dividends paid
${ }^{3} \$ 2,500$ dividends paid Matlock's corporate tax rate was 25%.Matlock has $250,000 on hand in cash and cash equivalents and is trying to decide whether to pay off $250,000 of debt or redeem the preferred shares.
Required:
A) What is Matlock's current return on equity?
B) What would be the effect on net income of retiring the debt? What would be their new return on equity?
C) What would be the effect on net income of redeeming the preferred shares? What would be their new return on equity?
D) Are there any other factors that would influence your decision?
E) Which of the two actions do you recommend to management? Support your answer.

• A) What is Matlock's current return on equity?
• B) What would be the effect on net income of retiring the debt? What would be their new return on equity?
• C) What would be the effect on net income of redeeming the preferred shares? What would be their new return on equity?
• D) Are there any other factors that would influence your decision?
• E) Which of the two actions do you recommend to management? Support your answer.

Analyze bank reconciliation components to adjust the book and bank balances.

Apply knowledge of miscellaneous bank transactions (NSF checks, bank service charges) in reconciling and recording in company books.

Identify and classify adjustments in bank reconciliation.

Record journal entries related to bank and cash transactions.

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Definitions:

Measurable Performance

Refers to the ability to quantify or assess the effectiveness or output of an employee, project, or organization.

Skill-based Pay Plan

A compensation strategy where employees are paid based on the skills and knowledge they possess, rather than their job position or title.

Productivity

The efficacy and efficiency with which input resources (such as time, labor, and materials) are converted into outputs, such as goods or services.

Service Quality

The assessment of how well a delivered service matches customer expectations, often a critical component of customer satisfaction in business.