Deli Bhd introduces a new product line to expand its market in gaining wide market shares. Deli Bhd has spent RM1,500,000 in capital investment and RM460,000 in working capital investment. It has decided that 10% of its working capital investment is considered buffer working capital. The firm's operating profits of RM650,000 are subjected to the 10% interest on long-term financing, 6% interest on short-term financing, and 24% tax rate. The capital structure is 40% equity, 50% long-term debt, and 10% short-term debt. Required: a. Analyse the financing strategy adopted by the firm
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Deli Bhd introduces a new product line to expand its market in gaining wide market shares. Deli Bhd has spent RM1,500,000 in capital investment and RM460,000 in working capital investment. It has decided that 10% of its working capital investment is considered buffer working capital. The firm's operating profits of RM650,000 are subjected to the 10% interest on long-term financing, 6% interest on short-term financing, and 24% tax rate. The capital structure is 40% equity, 50% long-term debt, and 10% short-term debt.
Required:
a. Analyse the financing strategy adopted by the firm (show all workings).
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- A. ABC Corp., expects a net income of Php. 250,000. The company has 10% of 5,000,000 Debentures. The equity capitalization rate of the company is 10%. 1. Calculate the value of the firm and overall capitalization rate according to the net income approach (ignoring income tax). 2. If the debenture debt is increased to Php. 750,000 and interest of debt is change to 8%. What is the value of the firm and overall capitalization rate?AutoZone Tyre Ltd wants to expand its production capacity by investing R10 million in new plant and machinery for the manufacturing of its new brand of tyres. The management of AutoZone Tyre Ltd prefers to maintain the present 35% debt, 55% equity and 10% preference shares capital structure. The company expects to have a net income of R1,8 million and bases its dividend payments on the residual theory. Debt financing may be obtained at an after-tax cost of 15%. Ordinary shares, which are currently selling for R38 a share, may be issued with a flotation costs of 15%. The firm will pay a dividend (D1) of R1,20 per share in the coming financial year and had a growth rate of 5% over the past few years. It is expected that this growth rate will be maintained in future. The company is contemplating issuing 9% preference shares that are expected to sell for a par value of R72 per share. The cost of issuing and selling the shares is expected to be 5%. The tax rate is 29%. Calculate AutoZone…AutoZone Tyre Ltd wants to expand its production capacity by investing R10 million in new plant and machinery for the manufacturing of its new brand of tyres. The management of AutoZone Tyre Ltd prefers to maintain the present 35% debt, 55% equity and 10% preference shares capital structure. The company expects to have a net income of R1,8 million and bases its dividend payments on the residual theory. Debt financing may be obtained at an after-tax cost of 15%. Ordinary shares, which are currently selling for R38 a share, may be issued with a flotation costs of 15%. The firm will pay a dividend (D1) of R1,20 per share in the coming financial year and had a growth rate of 5% over the past few years. It is expected that this growth rate will be maintained in future. The company is contemplating issuing 9% preference shares that are expected to sell for a par value of R72 per share. The cost of issuing and selling the shares is expected to be 5%. The tax rate is 29%. Calculate the…
- The board of directors of LuvMe Publishing Haus has commissioned a capital structure study. The company has a total assets of P59 million. It has earnings before interest and taxes (EBIT) of P9.0 million and is taxed at 25%. The stock has a book value of P25 per share. Additional information follows: Percentage of Debt Cost of Debt Required Rate of Return 0% 0% 10.0% 20% 8.5% 10.9% 30% 9.5% 11.5% 60% 15.0% 16.5% Based on the above information using the debt ratio given, prepare the schedule to answer the following: Earnings per share (EPS) Return on Equity (ROE) Price - Earnings ratioBen Corporation is deciding whether to pursue a restricted or relaxed working capital investment policy. The firm's annual sales are expected to total $2,400,000, its fixed assets turnover ratio equals 3.0, and its debt and common equity are each 50% of total assets which is composed of fixed and current assets. EBIT is $130,000, the interest rate on the firm's debt is 8%, and the tax rate is 30%. If the company follows a restricted policy, its total assets turnover will be 2.4. Under a relaxed policy its total assets turnover will be 2.0. a. What is the projected ROE under the relaxed policy? b. TIE ratio under relaxed policye. Kecewa Berhad is planning a RM50,000 expansion. The expansion is to be financed by RM20,000 debt and RM30,000 common stock. The before-tax cost of debt is 9% and the cost of common stock is 14%. If the corporate tax is 40%. Determine the Weighted Average Cost of Capital (WACC) for Kecewa Berhad.
- Lany Corporation is deciding whether to pursue a restricted or relaxed working capital investment policy. The firm’s annual sales are expected to total 2,400,000 its fixed asset turnover ratio equals 3.0, and its debt and common equity are each 50% of the total asset which is composed of fixed and current assets. EBIT is 130,000, the interest rate of the firm’s debt is 8%, and the tax rate is 30%. If the company follows a restricted policy, its total asset turnover will be 2.4. Under a relaxed policy its total asset turnover will be 2.0. How much would be the current assets under relaxed policy? Refer to the previous item, what is the projected ROE under the restricted policy? Use 2 decimal places for your final answer Refer to the previous item, what is the TIE ratio under the related policy? Use 2 decimal places for your final answer.Lany Corporation is deciding whether to pursue a restricted or relaxed working capital investment policy. The firm’s annual sales are expected to total 2,400,000 its fixed asset turnover ratio equals 3.0, and its debt and common equity are each 50% of the total asset which is composed of fixed and current assets. EBIT is 130,000, the interest rate of the firm’s debt is 8%, and the tax rate is 30%. If the company follows a restricted policy, its total asset turnover will be 2.4. Under a relaxed policy its total asset turnover will be 2.0. How much would be the current assets under relaxed policy?LANY Corporation is deciding whether to pursue a restricted or relaxed working capital investment policy. The firm's annual sales are expected to total $2,400,000, its fixed assets turnover ratio equals 3.0, and its debt and common equity are each 50% of total assets which is composed of fixed and current assets. EBIT is $130,000, the interest rate on the firm's debt is 8%, and the tax rate is 30%. If the company follows a restricted policy, its total assets turnover will be 2.4. Under a relaxed policy its total assets turnover will be 2.0. 1.) How much would be the current assets under relaxed policy? Use 2 decimal places for your final answer 2.) Refer to the previous item, what is the projected ROE under the restricted policy? Use 2 decimal places for your final answer 3.) Refer to the previous item, what is the TIE ratio under the relaxed policy? Use 2 decimal places for your final answer
- LANY Corporation is deciding whether to pursue a restricted or relaxed working capital investment policy. The firm's annual sales are expected to total $2,400,000, its fixed assets turnover ratio equals 3.0, and its debt and common equity are each 50% of total assets which is composed of fixed and current assets. EBIT is $130,000, the interest rate on the firm's debt is 8%, and the tax rate is 30%. If the company follows a restricted policy, its total assets turnover will be 2.4. Under a relaxed policy its total assets turnover will be 2.0. How much would be the current assets under relaxed policy? Use 2 decimal places for your final answer 600000F Enterprises is evaluating whether to do a either a restricted or relaxed investment policy on current assets. The sales of F Enterprises for the year is P400,000 while fixed assets are P100,000. Debt represents half of the firm’s assets. The firm’s debt has an interest rate of 10%. The EBIT of F Enterprises is P36,000. The entity is subject to income tax rate of 40%. Using a restricted policy, current assets will account for 15% of sales while the relaxed policy will increase share of current assets to 25 percent of sales. What will be the variance between projected return on equity between restricted and the relaxed investment policy on current assets?Assume that XYZ, Inc. is a single asset firm that is expected to generate $5 million in net cash flows per year indefinitely. The firm's tax rate is 35%. After satisfying all mandatory obligations, all remaining FCF is distributed to common stockholders in the form of cash dividends. The appropriate cost of equity capital, to ABC, is 14%. The firm's target capital structure includes a mix of debt and common equity and interest paid on debt amounts of $500,000 and this amount is tax deductable. What is the present value of the common equity to the shareholders of XYX corporation? $20,892,857 $2,925,000 $3,925,000 $4,925,000