Your Questions About Investing For Beginners

Joseph asks…

Stock Investing for beginners?

I am 29 years old and wanting to get into the stock market. I have started contributing to RSP’s since I was 21 and currently have roughly $80K in my RSP portfolio. Therefore, when I start looking to invest in stocks, I am willing to take on some high risk, and my goal for this, for the time being, is not for retirement – that’s what my RSP’s are for. However, I’m looking to only start with an investment of $2000, low I know, but I want to first start of with a small amount to learn the stock market and how to invest. Can someone help me understand what type of stocks I should be looking to invest in? I’m not sure if I should try to find stocks with growth potential, mix up my portfolio to keep it balanced, invest in bigger companies that pay dividends and have sustainable growth, etc.

Ideally, I would like to have a 15% ROI – 20% ROI, which I feel is not very high for someone willing to take on some risk. I’ve read some articles online on guides to investing for beginners, but I want to know more about what attributes of companies I should be looking at when choosing a company to purchase stock in.
Thanks for all the responses!! It looks like I have more reading to do before I actually start investing. I do not see myself spending hours per day researching and trading, but it if I start to like doing it then maybe I will spend more time. For now, I want to spend a couple of hours per week at most.

financi4 answers:

When you start, keep it simple.

You keep it simple and effective when you:
1) Invest in index funds (like the SPY for the S&P 500)
2) Buy the funds when the long-term trend in the market starts to go up and sell when the long-term trend in the market starts to go down.

Once you get comfortable with putting your real money to work in this way, you could start thinking of doing something else.

If you have sufficient time available and the skills and passion to analyze the financial data of individual companies, you could start allocating a part of your investments to individual stocks. But do your own analysis and do not follow the penny stock picks of someone else. And always keep an eye on the long-term market trend. Because when the overall market is going down like in 2008 or 2001-2003, most stocks go down, even those of the great companies.

Note that I do not bother with trying to pick individual stocks since I am happy with the returns I can get with the combination of Trend Investing and Index Funds.

James asks…

investing for beginners?

im 15 years old, i want to invest in EA for when battlefield 3 comes out.Honestly im using my own money, so the most im willing to invest is 100$ worth of stocks lol.My dad says if i predict the stocks correctly , he will invest a little more for me.Any tips?

financi4 answers:

The problem is that Battlefield 3 was announced a long time ago, so its release is already built into EA’s price. Think of it as if a bunch of investors are predicting how much $ EA will make off of Battlefield 3. If you think it will be a huge hit and will beat investors’ expectations, then you should buy it. If you think Battlefield 3 will make less than everyone predicts, don’t buy it. Personally, I think the price is probably too high because COD is also coming out and will eat into the Battlefield profits… But it’s really anyone’s guess.

In the future, the best way to make $ off of video game companies is to buy the stock before the game is announced. If you think a company is really innovative and will continue to create great games and increase earnings, then buy it.

John asks…

Coin Collecting/Investing for Beginners?

Can someone give a Beginner Coin Collector/Inverter some tips? such as what to watch for, what to stay away from, where to look, ect ect ect.

financi4 answers:

Well let me tell you its really easy to find places that sells coins in your local area, look at the phone book is one of them but i only thought of this after i found a place that sells coins. What i did was typed in some coin key words into google maps and saw a few places pop up then i paid them a visit. The one at my city has about everything from tokens to coins, and they even sell silver investments. They also have buckets of world coins that goes for cheep usually 25 cent a piece at least that’s how much they cost here and most coins stores will have this as i hear a lot of people saying there local coin store have a world coin bucket to select from. Investor coins are great, but i must tell you these coins are usually not for regular coin collectors who just want them for the looks, but to protect your wealth and savings. Such investor coins are the Canadian silver maple leaf coin, and in some cases, depending on the date it was issued it can be a collectible as well. The 1997 was one of the lowest mintage of maples there was with only around 100,000 made. There is another one the dutch liberation tulip privy silver maple this cost around 130.00 but usually these kinda silver coins and investor coins you can find at currency exchange offices. The one here has the silver maples and also the gold maples. Right now i am currently collecting nickel bullion coins and they are in the 1955 to 1981 canadian nickels, they can also be used as investments but also collection such as the 1964 canadian nickel. In that year look for the extra water line. If found in really good condition its worth something and its a good find. I hope you find this information useful

Powered by Yahoo! Answers

read more

Your Questions About Stocks And Bonds Game

William asks…

Do Obama Supporters know that he plans to raise the capital gains tax from 15% to 28%?

This will hurt the stock market and the stock market is the only game in town to make more money. The housing market is down and not such a great investment other than buying a house to live in for the long term. Also CDs aren’t so great as rates have fallen. Bonds aren’t great sincy rates have fallen. So raising to almost a double will hurt the market. Does anyone read. Yes Hilliary will raise to 20% but 5% is better than 13%. Yes it is just 8% more than Hillary, but ask yourself is 8% more tax not so much. I don’t want them to raise it at all.

financi4 answers:

Well that is nice, but we live in the United KINGDOM and you have posted in the UK tax section, so Obama is the least of our worries, and we are also facing harsh cuts over here with our own government making hard choices that we might not agree with.

Richard asks…

Do Obama Supporters know that he plans to raise the capital gains tax from 15% to 28%?

This will hurt the stock market and the stock market is the only game in town to make more money. The housing market is down and not such a great investment other than buying a house to live in for the long term. Also CDs aren’t so great as rates have fallen. Bonds aren’t great sincy rates have fallen. So raising to almost a double will hurt the market. Does anyone read. Yes Hilliary will raise to 20% but 5% is better than 13%. Yes it is just 8% more than Hillary, but ask yourself is 8% more tax not so much. I don’t want them to raise it at all.
Also his illegal allien plan is very flawed like most peoples, but Obama voters please look at the facts. It is not about black or white. Obama plans to have illegals go to the back of the line for processing, go back to their countries of origin, pay a fine ($5000.00), and best of all estimate and have them pay back taxes. But said he doesn’t want to split families up as this is un-American. SO how is sending someone back to their country to get in the back of the line while other family members are still here not splitting them up. Now let me be clear to all who read. I AM NOT FOR ILLEGALS BEING HERE FOR ANY REASON. I am not for Amnesty or Illegals getting a break. They broke the law period. I have to pay taxes , and so should they.
Tom, You must not use the stock market much if this is your view. There isn’t much interest on Cds or bonds, housing. So stocks is the only place to get ahead right now. Tom don’t you shop or buy gas. Did you notice inflation? If so then getting your money to beat inflation as Cds are not right now is important as you need leverage on your money to grow. What about all the retired people who are invested and use the stock market to supplement their income.
Michael, good point about Iras and 401k, but not everyone is in these vehicles and the stock market could go down. We don’t need more things to go down right now
maddie, don’t count on the capital gains tax to fix the roads. as always as a Obama supporter does. You guys simply just vote for him because you feel inspired. WELL INSPIRE THIS: Roads get fixed by the gas tax. Do some research please. Capital gains doesn’t fix the road. And as far as the war. Obama can’t pull all the troops out or even close within his first four years if elected. You will see this won’t happen and he will later justify his decission. Another Obama LIE

financi4 answers:

The problem here is the average Obama supporter doesn’t know what a Capital Gains Tax is…they only know hope and change.

Mark asks…

Is it a good idea to invest my money?

I am nineteen years old I have a job and I buy video games here and there but I really do not have a need to buy a lot of things and I was wondering if I should just invest some of the money I have sitting in my savings account in stocks and bonds or should I just let it sit there. If you think I should invest which firm should I choose to help me? I have thought about Schwab because they have portfolio management and I am a college student in the Pre-law program so I would not have to time to monitor my investments the way I should.
By the pre-law statement I mean that I would be in classes during market hours so I would not be able to buy/sell until maybe the last hour of trading

financi4 answers:

Yes, you should invest. Personally I would not leave it up to a brokerage to decide what was best but take an active role in it yourself. Prelaw is not that difficult to do. Bonds do not offer a very attractive rate of return. Same thing with mutual funds-stay away from them. Often times people talk them up because they are “safe” investments but it is not safe because of the missed opportunities that you lose. Anything with a return less than 5% is dismal. 10% is so-so. When you get returns of 20% or more, that is more like it.
Basically, just educate yourself and take an active role in your future because you can do better than brokers! You do not have to be day trading (watching the market all day long) to invest well. CD=Certificate of Depreciation because they do not even keep up with inflation! Education+Diversification=One Happy Investor!
Wow. I am shocked that two other posters thought it was appropriate to copy and paste the same info without listing a source. Anyways, I just want to add that you need to determine the level of risk/reward that you are comfortable with. Someone like you with your whole life in front of you, I would personally be looking for the highest ROI possible and screw the risk. Much better to take full advantage of the effect of compound interest sooner rather than later, which is a good reason to avoid low risk/low return investments like the plague. Another thing is folks will tell you that high return necessarily entails high risk, or penny stocks are automatically high risk. This does not have to be the case. For example I liked U.S. Silver a couple years ago because I visited the Galena mine and learned the story of what was going on there with the collapsed mine shaft that they needed to repair. To raise capital they issued stock, got the shaft open and everything humming along and with a simultaneous explosion in the silver price that stock is up from like $0.15 a year ago to something like $0.55 today, or close to 400% in a year. That is an example of a low risk penny stock because the value was not tied to an internet start up that may or may not work and has no real value but iffy future expectations but it was linked to a solid producing mine with good management, 10s of 1000s of acres owned and looking at a silver market that was ready to explode.

Paul asks…

more questions multiple choice questions??

Congress created the ___ to settle management-labor disputes in companies that are engaged in interstate commerce.
National Labor Relations Board
Labor Union Board
Civil Labor Relations Board

Before a company can do business, it must obtain ___ from the state government.
a large amount of money
permission to organize
interested workers

When we see a ball game between two teams, we are seeing
a monopoly at work.
sports live, and not on television.
competition in action

In business, competition will provide
disagreements and controversy.
the best service at the best price.
poor service at a poor price

A group of businesses that have given control over their prices and selling practices to a small group of people is a
stock.
bond.
trust.

Anti-trust laws have been passed to prevent
trusts and monopolies.
monopolies and franchises.
trusts and franchises

financi4 answers:

Wrong answers removed…

Congress created the ___ to settle management-labor disputes in companies that are engaged in interstate commerce.
National Labor Relations Board

Before a company can do business, it must obtain ___ from the state government.
Permission to organize

When we see a ball game between two teams, we are seeing
competition in action

In business, competition will provide
the best service at the best price.

A group of businesses that have given control over their prices and selling practices to a small group of people is a
trust.

Anti-trust laws have been passed to prevent
trusts and monopolies.

David asks…

Please help me with mytest tomarrow?

1: When we see a ball game between two teams, we are seeing

sports live, and not on television.
competition in action.
a monopoly at work

2: In business, competition will provide

disagreements and controversy.
the best service at the best price.
poor service at a poor price.

3: A group of businesses that have given control over their prices and selling practices to a small group of people is a

stock.
bond.
trust.

4: Anti-trust laws have been passed to prevent

trusts and monopolies.
monopolies and franchises.
trusts and franchises.

5: A board or commission will grant a public utility a ___, which is a contract between the government and the company.

monopoly
deed
franchise

6: What makes each seller work to provide lower prices and better services to customers?

corporation
competition
company

7: When one company has exclusive control over a service or product, it is a

monopoly
franchise
corporation

8: Public utility boards or commissions are used by

the federal government
the state and federal government
the local, state and federal government

9: Being an innovator, risk-taker, and businessperson are characteristics of

a monopoly
an entrepreneur
a federal employee

10: Franchises give the utility the right to

establish a monopoly
control prices
hire new employees

financi4 answers:

1. Competition in action
2. The best service at the best price
3. Stock
4. Trusts and monopolies
5. Franchise
6. Competition
7. Monopoly
8. The local, state and federal government
9. An entrepreneur
10. Control prices

It’s been a long time since I took business and marketing but these are the answers I would use, hope it helps some.

Chris asks…

PLEASE HELP!!! QUIZ ON MONDAY!! Need CORRECT answers to STUDY for test on MONDAY!!!?

1.) When we see a ball game between two teams, we are seeing
sports live, and not on television.
competition in action.
a monopoly at work

2.) In business, competition will provide
disagreements and controversy.
the best service at the best price.
poor service at a poor price.

3.) A group of businesses that have given control over their prices and selling practices to a small group of people is a
stock.
bond.
trust.

4.) Anti-trust laws have been passed to prevent
trusts and monopolies.
monopolies and franchises.
trusts and franchises.

5.) A board or commission will grant a public utility a ___, which is a contract between the government and the company.
monopoly
deed
franchise

6.) What makes each seller work to provide lower prices and better services to customers?
corporation
competition
company

7.) When one company has exclusive control over a service or product, it is a
monopoly
franchise
corporation

8.) Public utility boards or commissions are used by
the federal government
the state and federal government
the local, state and federal government

9.) Being an innovator, risk-taker, and businessperson are characteristics of
a monopoly
an entrepreneur
a federal employee

10.) Franchises give the utility the right to
establish a monopoly
control prices
hire new employees

financi4 answers:

1.When we see a ball game between two teams, we are seeing
a)competition in action
2.In business, competition will provide
a)the best service at the best price.
3.A group of businesses that have given control over their prices and selling practices to a small group of people is a
a)trust.
4.Anti-trust laws have been passed to prevent
a)trusts and monopolies.

Sorry i dunno the rest:)

James asks…

Which do you prefer to trade…..?

I’m a 19 year old trader. Mainly I trade currencies but I sometimes swing trade stocks and binary options. I’ve dabbled a little in binary options on futures and have made some money but my main bread and butter is currencies. Which do you prefer to trade? Stocks/options, currencies, commodities (futures), bonds, e-minis, etc. I’d like only those who have traded at least two or three of these markets to answer. It makes no sense to answer if you’ve only traded stocks or futures.

*NOTE: I know I’m young and have only been trading for 2 and a half years. I know I have a lot to learn and all that. So I don’t need lectures about how hard certain markets are to trade or how commodities is a “zero-sum gameand all that blah blah. I know all this. I just want to know what you guys prefer to trade*

financi4 answers:

I actually trade based on what the market is doing. If the market is trending up or down really well, I like to swing trade options on specific companies. If it is pretty choppy, I usually daytrade qqqq or spy. Those are what I have the most success with. Recently I started looking into S&P e-minis, but when I day trade I am an uber scalper and sometimes the spreads on the e-mini’s take a little more than doing spy or qqqq. However, I am continuing looking into the e-mini’s and making some tweaks to my system as I am interested in the tax savings they provide.

I have looked at currency, but never felt comfortable putting my money in an unregulated market. Just my preference…

Powered by Yahoo! Answers

read more

Your Questions About Which Of The Following Is Not A Part Of Comprehensive Income

Chris asks…

Hi, I’m Jeffrey. I am supporting Obama for 2012, are you?

Obama has done great things even though many people try to downplay him and make him seem like a bad president. Nice try. Obama has:

1. Extended your medical coverage to age 26 under your parents plan.
2. Cut payroll taxes on average of $1500/yr. per family – your family included.
3. Prevented GM and Chrysler from bankruptcy, avoiding much deeper recession.
4. Helped bail out the financial sector preventing a global meltdown. Our safety nets are still intact.
5. Passed regulations on the banking industry to prevent future disasters. Your savings are safer.
6. Passed a stimulus package which stopped the hemorrhage of unemployed Americans.
7. Restored respect for American foreign policy, especially with our allies.
8. Withdrew American troops from Iraq. Your less likely to be drafted, blown up, or shot at.
9. Gave moral support to the Arab Spring movements promoting democracy. (see #7)
9. Kept ground forces out of Libya, Syria, Egypt, and Yemen. (see #7)

The following are just some other accomplishments of this president:
Commerce, Trade and Technology:
1. Promoted internet freedom as part of U.S. foreign policy.
2. Passed Webcaster Settlement Act of 2009.
3. Passed Satellite Television Extension Act of 2010.
4. Expanded loan programs for small businesses.
5. Passed Small Business Investment Act.
6. Proposed tougher meat industry antitrust rules.
7. Denied federal contracts to tax delinquents.
8. Appointed the nation’s first Chief Technology Officer.
9. Established Federal IT Dashboard. ref
10. Modernized the USA.gov portal to connect people to the services they require.
11. Launched the National Export Initiative, with the goal of doubling US exports by 2015.
12. Launched piracy crackdown.
Economy:
1. Passed The American Recovery and Reinvestment Act of 2009 (ARRA): a $789 billion economic stimulus plan.
2. Created US auto industry rescue plan saving GM and Chrysler and their employees.
3. Passed Worker, Homeownership, and Business Assistance Act of 2009.
4. Passed temporary extension of programs under the Small Business Act and the Small Business Investment Act of 1958.
5. Provided $26 billion aid to states package (Aug 2010)
6. Raised the small business investment limit to $250,000 through the end of 2009. ref
7. Created an Advanced Manufacturing Fund to invest in peer-reviewed manufacturing processes.
8. Passed Improper Payments Elimination and Recovery Act – establishes a Federal “Do Not Pay” list.
9. Extended and indexed the 2007 Alternative Minimum Tax patch.
10. Adopted Economic Substance tax doctrine.
11. Extended unemployment insurance benefits and temporarily suspend taxes on these benefits.
Education: College
1. Enacted largest reform of student aid in 40 years.
2. Passed Health Care and Education Affordability Reconciliation Act of 2010.
3. Established President’s Advisory Council on Financial Capability to assist in financial education for all Americans.
4. Increased funding for land-grant college.
5. Provided means for students struggling to make college loan payments to refinance.
6. Expanded Pell grants for low-income students. ref
7. Expanded Pell grant pool by eliminating private lender subsidies for student loans.
Education: Health of Children
1. Created the Race to the Top Fund ($4.35 billion) to reward States that create comprehensive education reform plans.
2. Passed Children’s Health Insurance Program Reauthorization Act of 2009.
3. Provided funding for high-speed, broadband Internet access to K-12 schools.
4. Established State Equalization Fund; new funds for school construction (ARRA).
5. Provided $77 Billion for reforms to to strengthen Elementary and Secondary education.
6. Fully funded the Community Development Block Grant (CDBG).
7. Provided $12.2 billion in new funding for the Individuals with Disabilities Act through the American Recovery and Reinvestment Act.
8. The $26 billion state aid package saved 160,000 teacher jobs (Aug 2010) ref
9. Provided over $2.3 billion in additional funding to Head Start and Early Head Start programs in 2009.
10. Provided $5 billion dollars for Early Learning Programs under the American Recovery and Reinvestment Act.
11. Roughly doubled the amount available in Federal Child Care Block Grants.
12. Established “Promise Neighborhood” Grants (modeled after the Harlem Children’s Zone).
13. Eliminated abstinence-only funding in budget.
14. Helped rebuild schools in New Orleans.
15. Established school programs to highlight space and science achievements.
16. Provided recruitment of math and science degree graduates to the teaching profession.

financi4 answers:

Jeffery, you’re the new poster child for why we need to fix the broken education system in this country.

Powered by Yahoo! Answers

read more

Your Questions About Invest In Gold Stock

Paul asks…

how to invest in Gold in the form of an equity stock?

Are there any exchange-traded stocks whose prices strictly follow the price of Gold?

financi4 answers:

Yes, there are several gold ETF’s. IAU and GLD are two of them that can be traded as you trade equities. You can even use limit orders on them. Just watch the expense ratio. For more information, go to the AMEX web site and look for ETF.

The alternative is to buy a stock of a gold mining company. There are literally dozens of them, some of the more popular ones being RGLD, ASA, NEM, AUY, GG.

Steven asks…

Is this a good time to invest in Gold producers stocks?

financi4 answers:

That depends on whether you think we will get inflation or deflation. I think we will get the latter. As a result of my bias, it is very easy for me to find evidence of this:
– house prices still falling
– gas prices are coming down, even during the peak driving season
– savings rate is up

Here’s a deflation sign that the mai nstream news competely missed: in current dollar value (not accounting for inflation/deflation), the GDP actually dropped *more* than expected. The better than expected real GDP number was a result of lower than expected inflation: almost 0, actually.

Http://biz.yahoo.com/c/ec/200931.html
Expectations: -1.5% real GDP + 1.0% chain deflator =
-0.5% current dollar GDP

Actual: -1% real GDP + 0.2% chain deflator =
-0.8% current dollar GDP

This is akin to your salary dropping more than you expected, but your buying power dropped less than you expected because prices rose less than you thouhgt they would.

So my opinion is that this is a good time to SELL gold. We’ll see if the stock market can stay up through the Fall.

Mark asks…

What is the best way to buy gold – etfs or physical gold? Also need info on ETFs…?

I am strongly considering investing in gold. But from what I see on here some people on here recommend buying ETFs and some seem to think physical gold is at least okay. Also, is an ETF like a share of gold stock. Please tell me more about ETFs and how they are traded. For all of the above please provide sources and or your credentials below your answer.

financi4 answers:

Gold ETFs: you trade them like funds or stocks. Pros: fast trading, low premium over the actual gold value. Drawbacks: quality of the management matters, fees vary, you really need to read the prospectus (e.g. Some ETFs lease gold to 3rd parties – i.e. The gold is physically not really there), it may not be backed 100% by gold but just 90%, etc.. It really depends -> prospectus and a lot of research. But, gold ETF is taxed as a mutual fund, which can result in slightly lower capital gain tax than physical gold..

Physical gold: you pay a premium (usually $50-70 over spot with 1 ounce coins). But then, you also get the premium back (partly) when selling gold (even if you sell on ebay, you still get more than the spot price – check out http://www.goldprice.org/ebay-gold-prices/). Pros: You hold the physical and you know it’s 100% there, in any type of meltdown. Govt doesn’t need to know you have them or you sold them (purchases under $10,000 or sales up to 25 ounces don’t have to be reported) -> consider capital gains tax. If you buy from BBB A rated dealers you can be sure it’s genuine. Drawbacks: you need a safe place (safe at home or safe deposit $100-300/year), shipping cost when buying online ($30-50). If you believe there may be a serious market crash (exchanges may be down and ETFs not tradeable), this is the better option.

Allocated gold: this is a compromise between an ETF and physical gold. You are a partial owner of a standard 400oz gold bar. The total cost of gold ownership about the same or lower as ETFs. Gold is held as bailment, i.e. You really hold title to it. Only two companies offer this so far: BullionVault and GoldMoney. Pros 24/7/365 instant transactions, low cost, gold is 100% physically there unlike many ETFs. Drawbacks: possibly higher taxation than ETFs or coins..

All in all, my favorite would be probably gold coins (and silver coins too > gold to silver ratio tends to get narrower in crisis times so silver may appreciate more if the dollar hits the fan, plus silver is much more practical – 1oz coin is worth only $20 so you can actually effectively use it for daily transactions etc..) .. But that’s my opinion. I’m very conservative and don’t trust the management of most funds.

Powered by Yahoo! Answers

read more

Your Questions About Ppf Disadvantages

Charles asks…

What is better tax saving investment option PPC or NSC?

The best part of PPF was return were tax free however money gets locked for 15 years. . Compared to PPF NSC had one advantage that money was locked for only 6 years but disadvantage was that returns were taxable. With the Effect of DTC on PPF the returns from PPF will be taxable on withdrawal. So now what is better PPF or NSC. Can anyone guide me some investment with guarantied return and tax exempt on returns in India?

financi4 answers:

PPF is better as compare to NSC , further you can also withdraw amount from ppf after 6 years onwards

http://www.simpletaxindia.org/2010/12/ppf-may-be-best-tax-saving-option-just.html

Powered by Yahoo! Answers

read more

Your Questions About Stocks And Bonds Game

Ken asks…

Re: 401k, are ‘bond funds’ or ‘cash reserves’ a safer choice right now until the market stabilizes?

I still have a long ways until retirement (approx 30 years), but if the market crashes completely is it possible for my 401k (which is very heavy in stocks right now) to be wiped out completely? I don’t want to play the guessing game and try to short anything, I’m just wondering if the ‘cash reserves’ are safe (or safer) from a market crash? Also, would bond funds lose money if the market surged unexpectedly, or would they simply not gain as much as stocks? I was just looking for a stable place for my 401k savings to rest until the market sorts itself out. I have some IRAs with money in Fidelity Cash Reserves, but my main 401k is locked into Fidelity with these options for bond funds: Fidelity Managed Income Portfolio II Class 2, PIMCO Total Return Inst CL, Vanguard Total Bond Mrkt Index Inv CL. What is the ‘safest’ choice right now???

financi4 answers:

Absolutely Fidelity Cash Reserve. Bond funds are a very bad investment options because the Fed has lowered interest rates to save their buddies on Wall Street. When those interest rates are raised back up to normal levels existing bonds will drop like rocks. But one of the best bond funds on the market today is the PIMCO Total Return.

James asks…

Financial Accounting help!!!?

I am in beginning Accounting in college and I am stuck on this stupid problem.. Please help me!!

Exercise 9-1 Compare financing alternatives (LO1)

Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $24.7 million gaming center:

a. Issue $24.7 million of 6% bonds at face amount.

b.Issue 1 million shares of common stock for $24.7 per share.

Requirement 1:

Assuming bonds or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. (Round your “Earnings per Share” to 2 decimal places. Omit the “$” sign in your response.)

I need to find each of these:

ISSUE BONDS:

Interest Expense:____
Income Before Tax:_____
Income Tax expense (35%):_____
Number of shares: 3,010,000
Earnings per share (Net income / # of shares):_____

ISSUE SHARES:
Everything is the same except it does not ask for Interest expense and the Number of Shares is 4,010,000..

For both the bonds and shares the operating income is 11,600,000

I am not sure if yall can help me with this but if you can please do so..

financi4 answers:

Alternative 1 ( if finance raised by bond issue)
$m (calculation)
Operating Income 11.6
intrest expense: 1.48 (24.7 * 6%)
profit before tax 10.12 (11.6-1.48)
Tax 3.54 (10.12*35)
Profit after Tax 6.58 (10.12-6.58)

earnings per share 2.19 (6.58/3.01)

——————————————————————————
Alternative 2 ( if finance raised by share issue)
$m (calculation)
Operating Income 11.6 (as given in question)
intrest expense: – – (as no bond issue so no interest payment)
profit before tax 11.6
Tax 4.06 (11.6 * 35)
Profit after Tax 7.54 (11.6 – 4.06)
(or net profit)
earnings per share 1.88 (7.54/4.01) as new shares will be issued and will thus increase
numbe of shares and lower earnings per share

Best of luck

Powered by Yahoo! Answers

read more