Dan Corp. has a degree of financial leverage of 2. Third Corp. will experience a 75% increase in earnings per share, and it will have earnings before interest and taxes of P120,000 if sales increase by 30%. Determine the degree of operating leverage of the Dan Corp.? A. 1.25 B. 1.00 C. 1.20 D. 1.40
Q: Sam Holdings is planning to open a new wholesaling operation. The target operating profit margin is…
A: Degree of combined/total leverage: The degree of combined leverage summarizes the effect of both the…
Q: A firm has total assets of $1 million and a debt ratio of 30%. Currently, it has sales of $2.5…
A: Working note:
Q: ABC Company is currently an unlevered firm. The company expects to generate $152.3 in earnings…
A: In the given question we need to compute the new value of ABC Company.
Q: The firm has capital structure of 25% debt and 75% equity. The company is planning to raise the…
A: Computation:
Q: 3. (a) Almond Corporation is expected to pay a RM2.50 dividend at year end (D, = RM2.50), the…
A: Weighted average cost of capital (WACC) refers to the average cost that is paid by a company to…
Q: BIGZ Resources Company has a WACC of 14.6 percent, and it is subject to a 32 percent marginal tax…
A: Weighted Average Cost of Capital (WACC) is the overall cost of capital from all the sources of…
Q: Alli Corporation has established a target capital structure of 40 percent debt and 60 percent common…
A: Any year’s profit earned by the company if not distributed to the shareholders is known as retained…
Q: Bridgette Inc. has forecasted that its net income will be P400,000. The company has debt ratio of…
A: Given Information : Net Income = P400,000 Debt ratio = 30%Project Investment = P500,000 Number of…
Q: Serenity Systems Inc. is expected to pay a $2.50 dividend at year end (D, = $2.50), the dividend is…
A: The weighted average cost of capital is the weighted average of the cost of equity, cost of debt and…
Q: Williamson, Inc., has a debt-equity ratio of 2. The firm's weighted average cost of capital is 10…
A: Given: Debt to equity = 2 WACC = 10% cost of equity re=21.6% tax = 30%
Q: 1. Determine the present value of the interest tax shield of Shop Right Plc as well as the total…
A: Net Income Theory(NI) is an important theory of capital structure. It was developed by David…
Q: Blue Co., a company with 25% tax rate, has a free cash flow of P150,000,000 for the next year and is…
A: FCF1 = P 150,000,000 Growth rate (g) = 4% Debt to equity (D/E) = 0.25 Cost of debt = Rd = 5% Cost of…
Q: 4. Calculate the degree of financial leverage for a firm with EBIT of $6,000,000, fixed cost of…
A: Note: Answering fourth question as asked. The question is based on the concept of calculation for…
Q: Petra plc. has a current and target leverage ratio of 0.8, the finance cost from loans is 16 per…
A: Weighted cost of capital: It can be defined as the rate that is paid by the company on the average…
Q: Evelyn Incorporated is expected to pay a dividend at year end of D1 = $2.25. This dividend is…
A: Before tax cost of debt =7.50% After tax cost of debt = Before tax cost of debt * (1-tax rate) After…
Q: A firm has an net operating profit of P300,000, interest of P35,000, and a tax rate of 25%. The firm…
A: Net operating profit = P300,000 Before tax cost of debt (Kd) = 0.06 Cost of equity (Ke) = 0.15…
Q: The ABC corp. is expected to have the earnings before interest and taxes of $60,000 and the…
A: EBIT= $60,000 Unlevered Cost of capital (Vu)= 12% Tax rate= 30% Debt value= $20,000 Annual coupon…
Q: Aruz Berhad sells its product at RM45 per unit. Fixed cost per year is RM220,000 while variable cost…
A: Part (1): Calculation of EBIT and EPS: Answer: EBIT is RM230,000 EPS is 0.46
Q: Houston Tools has expected earnings before interest and taxes of $189,400, an unlevered cost of…
A: A levered firm is one which has debt and an unlevered firm is one which has no debt. We will use the…
Q: The ABC corp. is expected to have the earnings before interest and taxes of $60,000 and the…
A: Value of Unlevered firm (Vu)Vu=EBIT1-TRu where T= Tax rate, Ru=Unlevered cost of capital Value of…
Q: Phil plc and Costas plc are identical firms except that Costas is more levered. Both companies will…
A: in this we have to calculate expected profit.
Q: Aruz Berhad sells its product at RM45 per unit. Fixed cost per year is RM220,000 while variable cost…
A: Part (i): Calculation of EBIT and EPS: Answer: Earnings before interest and taxes (EBIT) is…
Q: The ABC corp. is expected to have the earnings before interest and taxes of $60,000 and the…
A: As per MM proportion 2 value of unlevered firm will increase by present value of tax shield provided…
Q: Suppose a firm has 1.5 billion shares outstanding and just reported a net income of $3 billion. The…
A: Here,
Q: Please show the solution. Thank you. 1. Gateway Inc. has a weighted average cost of capital of…
A: Company's Growth Rate:-Company's growth rate depends on the variable over a specific period of time.…
Q: What should be the firm’s growth rate in order to attain a weighted average cost of capital of…
A: Dividend discount model refers to a stock valuation model which is used by the company for…
Q: Sorensen Systems Inc. is expected to pay a $2.00 dividend at year end (D1 = $2.00), the dividend is…
A: wacc formula is given as: WACC =wd×kd×1-tax+we×kewhere,wd= weight of debtwe= weight of equitykd=cost…
Q: NUBD had 5 degrees of operating leverage when its profit before taxes was P200,000. If the company's…
A: Given, Degree of operating leverage = 5 Increase in sales = 15%
Q: What is the company's WACC?
A: Information Provided: Dividend = 2.50 Growth rate = 5% Common stock = $71 Cost of debt = 6.75% Tax…
Q: A firm has EBIT of R375,000, interest expense of R75,000, preferred dividends of R6,000 and a tax…
A: Leverage is an investment technique that involves the use of borrowed money—specifically, the use of…
Q: Sorenson Systems, Inc. is expected to pay a dividend of $3.30 at year end (D1), the dividend is…
A: Wacc is the weighted average cost of capital
Q: ABC Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to…
A: Computation:
Q: BN had 5 degrees of operating leverage when its profit before taxes was P200,000. If the company’s…
A: Degree of operating leverage = % change in operating income% change in sales…
Q: calculate the degree of financial leverage for a firm with EBIT of $6,000,000, fixed cost of…
A: The degree of financial leverage is the leverage which shows sensitivity of the company’s earnings…
Q: ABC Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to…
A: WACC = (Ke * We) + (Kd * Wd) Ke = Cost of equity Kd = Cost of debt We = Weight of equity Wd = Weight…
Q: Ivanhoe Resources Company has a WACC of 12.0 percent, and it is subject to a 40 percent marginal tax…
A:
Q: Bulldogs Inc. has forecasted that its net income will be P520,000. The company has an debt-to-equity…
A: Funding amount = P 600000 Debt to equity ratio = 25%
Q: Compute the degree of financial leverage for a firm with EBIT of P6,000,000, fixed costs of…
A: Degree-of-Financial Leverage or DFL shows effect of variation in earnings of an entity or EBIT due…
Q: What is Ningbo Shipping's WACC if it's after tax cost of retained earnings is 14%, and the firm's…
A: Weighted Average Cost of Capital is referred to as the calculation of the cost of capital of the…
Q: Majan Mining has found that its cost of common equity capital is 17 percent and its cost of debt…
A: WACC = Weight of equity * Cost of equity + weight of debt * cost of debt*(1-tax)
Q: David Ortiz Motors has a target capital structure of 40% debt and 60% equity. The yield to maturity…
A: Given: Capital structure: Debt = 40% Equity = 60% Long term debt security = 9% Tax rate = 40% WACC…
Q: A firm has a ROE of 16.875%, asset turnover of 2.5, and an equity multiplier of 1.5. If the firm has…
A: To calculate the net income following figures are to be determinedCalculation of total assets:
Q: NUBD had 5 degrees of operating leverage when its profit before taxes was P200,000. If the company’s…
A: Solution: Profit before taxes will increase by = Increase in sales * degrees of operating leverage…
Q: Ramos Berhad has the following capital structure which it considers optimal: Debt-30%, PS-18%,…
A: Computation:
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
- Assume there are two firms with a MV of $50,000,000. Firm A consists of 10% debt and 90% equity. Firm B consists of 40% debt and 60% equity. Assume perfect capital markets and M&M Proposition 2 holds. Which firm will have a higher expected return for equity holders? Why? For the toolhar prace ALT+F10/PC or ALT+FN+F10 (Mac).Ch 18) Suppose Alcatel-Lucent has an equity cost of capital of 10.1%, market capitalization of $11.52 billion, and an enterprise value of $16 billion. Suppose Alcatel-Lucent's debt cost of capital is 5.7% and its marginal tax rate is 33% a. What is Alcatel-Lucent's WACC? b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here, c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? a. What is Alcatel-Lucent's WACC? Alcatel-Lucent's WACC is 8.34 % (Round to two decimal places.) b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here, The NPV of the project is $87.51 million. (Round to two decimal places.) c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? The debt capacity of the…Growth Tech Inc., has earned $ 40 as Earnings Per Share. It proposes to pay $10 as dividend and reinvest the remaining. The return on investment by the firm is 20%. What is the growth rate of the firm’s earnings and dividends assuming a constant payout ratio and return on investment? A. 20% B. 18% C. 15% D. 12%
- Compute the degree of financial leverage for a firm with EBIT of P6,000,000, fixed costs of P3,000,000, interest expense of P1,000,000, preferred stock dividends of P800,000 and a 40% tax rate. a. 1.2 b. 1.11 c. 1.43 d. 1.64* A company provided the following information: ROA= 15% Financial Leverage Ratio 1.8 What is the company's financial leverage percentage? (Round your answeAs an Analyst you were tasked to compute for the Weighted Average Cost of Capital of variouscompanies given the following information. Income tax rate is 25% a. What is the cost of equity of each companies?b. What is the after tax cost of debt of each companies?c. What is the WACC of each companies? W Corp A Corp Co. Corp Ca Corp Risk Free rate 4.00% 3.00% 2.00% 3.50% Beta 1.25 % 1.50% 1.30% 1.40% Market Return 12.00% 11.00 % 10:00% 8:00% Debt to Equity Ratio 2.5 3 4 3.5 Credit Spread om BPS 200 300 250 150
- Deng Inc.’s EBIT changes by 20%. The firm computed that they have a Degree of financial leverage of 3. What is the expected change in the earnings per share of Deng Inc.? A. 6% B. 6.67% C. 60% D. 66.67% Dan Corp. has a degree of financial leverage of 2. Third Corp. will experience a 75% increase in earnings per share, and it will have earnings before interest and taxes of P120,000 if sales increase by 30%. Determine the degree of operating leverage of the Dan Corp.? A. 1.25 B. 1.00 C. 1.20 D. 1.4048. You have calculated Ford Motor's degree of financial leverage as 1.5. This is based on computations involving a net income before taxes and interest of P150,000. Ford Motor is subject to a tax rate of 30%, and a net margin ratio of 10%. If operating income increases by 5%, how much will earnings to shareholders increase by? a. 5% b. 3.33% c. 7.5% d. 1.5% 5 a n 11 inA firm has a profit margin of 15 percent on sales of GHS20,000,000. If the firm has debt of GHS7,500,000, total assets of GHS22,500,000, and an after-tax interest cost on total debt of 5 percent, what is the firm?s ROA? O A. 8.4% B. 10.9% O C. 12.0% D. 13.3% E. 15.1%
- Degree of operating leverage of 1.5 means: a. If sales rise by 1%, EBIT will rise by 1.5% b. If sales rise by 1%, EBIT will remain unaffected c. If EBIT increase by 1%, the EPS will increase by 1 % d. If sales increase by 1.5%, the EBIT will increase by 1%Suppose Alcatel-Lucent has an equity cost of capital of 9.2%, market capitalization of $10.95 billion, and an enterprise value of $15 billion. Suppose Alcatel-Lucent's debt cost of capital is 6.9% and its marginal tax rate is 38%. a. What is Alcatel-Lucent's WACC? b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here,? c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? a. What is Alcatel-Lucent's WACC? Alcatel-Lucent's WACC is%. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 0 1 FCF ($ million) - 100 50 Print C Done 2 99 3 66 XPlz Use excel !!! and show formula A company currently has a WACC of 10.6 percent and no debt. The tax rate is 21 percent. a. What is the company’s current cost of equity? b. If the firm converts to 40 percent debt with a cost of 6%, what will its cost of equity be? And the WACC? c. If the firm converts to 60 percent debt with a cost of 6% , what will its cost of equity be? And the WACC? d. What can you conclude from the values of the cost of equity and WACC obtained in b. and c.