Edwards Construction currently has debt outstanding with a market value of $75,000. The company has a WACC of 9 percent and has EBIT of $8,750 in the next year. The tax rate is 20%. What is the debt-to-value ratio if the EBIT’s growth rate is 5%? a. 42.86% b. 39.33% c. 96.42% d. 32.45%
Q: How long will it take $2,000 to reach $5,600 when it grows at 10 percent per year? (Do not round…
A: Future Value refers to the compounded value of a single cash flow received today or multiple cash…
Q: Assume interest rate is zero. In a shout call option the strike price is $30. The holder shouts when…
A: A Call Option is a financial contract that gives the holder the right, but not the obligation, to…
Q: A stock has had the following year-end prices and dividends: Dividend Price $ 16.50 $ 0.15 0.35 Year…
A: No. of years.Price…
Q: Suppose that the S&P 500 is expected to return 11 percent in the next year and T-bills are yielding…
A: In the given case, we have provided the S&P 500, T-bill and the beta.Where,S&P 500 =…
Q: Scranton Shipyards has $10million of sales and $6million of operating costs including depreciation.…
A: Sales = $10 millionOperating costs = $6 million Capital invested = $20 million Cost of capital = 10%…
Q: An investor is considering an investment property, but will only pay the price that will result in…
A: IRR means Internal rate of return.It is the rate of return at which present value of cash inflows is…
Q: Grossnickle Corporation issued 20-year, noncallable, 8.0% annual coupon bonds at their par value of…
A: Bonds are debt instruments issued by companies. The issuing company pays periodic coupons or…
Q: Consider the following financial statement information for the Bulldog Icers Corporation: Ending…
A: The operating cycle refers to the time taken by a company to turn its inventory into cash. The…
Q: What is the value today of a zero-coupon bond with par value of $1,000 maturing in 12 years if the…
A: Par value of Bond =$1,000Yield to maturity (i)=14%Time Period =12 yearsRequired:Present Value of…
Q: Holt Holdings, Inc., is considering replacing their existing operating system with a ne The new…
A: Most willing to pay would be the present value of cash flow from the assets based on the time value…
Q: ercise, we consider the effects of starting early or late to save for retirement. Assume that the…
A: The retirement planning should be done based on the future requirements time value of money and…
Q: $1000 is invested in an account for six months. The interest rate is 10 % per annum. Calculate the…
A: Future value is that amount which is receive by the investor at some specified period of time.It…
Q: You are buying 200 shares of Never Buy Co. stock on the margin at a price of $55. Your broker…
A: Solution:Margin refers to the amount of money required to be deposited with the clearing house at…
Q: Precision Tool should purchase Machine _____ because it lowers the firm's annual cost by…
A: Net present value is determined by deducting the current value of cash flows from the initial…
Q: • Find the rate of return (IRR CPT) of a project that expects net returns (inflows) of $7,000 at the…
A: Solution:-Internal Rate of Return (IRR) is the rate of return the project is yielding. It can be…
Q: What is the value of an investment that pays $75,000 every other year forever, if the first payment…
A: The PV of an investment refers to the combined worth of the cash flows of the investment which are…
Q: NU YU announced today that it will begin paying annual dividends. The first dividend will be paid…
A: Solution:Gordon Growth Model (GGM) is the equity model which measures current price of share.For the…
Q: One-year Treasury securities yield 3.15%. The market anticipates that 1 year from now, 1-year…
A: According to expectation theory short term interest must be based on the expected interest rate in…
Q: A BBB-rated corporate bond has a yield to maturity of 13.2%. A U.S. Treasury security has a yield to…
A: A treasury bill is a kind of debt security issued by the government and private companies for…
Q: You have the following three quotes from three different banks. If you have USD1,000, how much can…
A: Solution:Arbitrage means earning a profit without risk and without investment.
Q: ook Security Systems has a $37,500 line of credit, which charges an annual percentage rate of prime…
A: DatesNo. of…
Q: Phlight Restaurant is considering a delivery service. The firm expects that sales from the new…
A: Sales from New Service = $150,000Current Delivery Service sales = $100,000Estimated shift from…
Q: A mutual fund has a current offering price of $53.21. What is the net asset value if the fund…
A: Solution:Load means the entry/exit charges charged by the mutual fund.
Q: If you put $5,421 into an account with an annual return of 7.9%, how many years will it take to have…
A: Variables in the question:PV=$5421Rate=7.9% (compounds quarterly)FV=$38587Required: N
Q: Your employer contributes $500 per month, at the beginning of each month, to a retirement fund on…
A: This is a case of annuity due. Annuity refers to a stream of cash flows occurring constantly from…
Q: Calculate the Cost of the Common stock
A: The cost of common stock, often referred to as the cost of equity (Ke), represents the return that…
Q: The Booth Company's sales are forecasted to double from $1,000 in 2019 to $2,000 in 2020. Here is…
A: AFN is used in the business for the purpose of expanding it if the sufficient earnings are not…
Q: Nikita Enterprises has bonds on the market making annual payments, with eleven years to maturity, a…
A: Here, Par Value of Bond$1000Current Price of Bond$970YTM of Bond7%Time to Maturity in years11
Q: three-year coupon bond with 10%annual coupons is selling for $1,100. If you purchase this bond and…
A: Bonds are sources of income and finance for companies and bonds are quite safe and secured sources…
Q: QUESTION 14 Suppose you observe the following zero-coupon bond prices per $1 of maturity payment as…
A: The solution requires complex calculations which need to be performed in excel. There could be a…
Q: Use the following information to answer Questions 8-9: Suppose that the June 2023 Mexican peso…
A: Futures contract:Futures contract is a standardized contract traded on an exchange, such as the…
Q: Huang Company's last dividend was $2.45. The dividend growth rate is expected to be constant at…
A: Current Dividend = d0 = $2.45Growth Rate for First 3 Years = g3 = 22.5%Constant Growth Rate after…
Q: Footsteps Company has a bond outstanding with a coupon rate of 5.1 percent and annual payments. The…
A: Solution:-Yield to maturity means the rate of interest earned by the bond holder if the bond is held…
Q: 65, (CO 6) Sunrise has negotiated a $1,500,000 line of credit with the local bank. The terms of the…
A: A line of credit (LOC) is a flexible borrowing arrangement between a borrower and a financial…
Q: Dream As You Can is expected to pay $3 dividends each year over the next three years. It is then…
A: Solution:Gordon Growth Model (GGM) is the equity model which measures intrinsic value of share.For…
Q: Two annual coupons bonds both mature in 9 years. Bond A has a coupon rate of 4.00% and a yield to…
A: Solution:-Bond price means the price at which a bond should trade in the market. It is the summation…
Q: The NFF Corporation has announced plans to acquire LE Corporation. NFF is trading for $50 per share,…
A: Exchange ratio refers to the issue of no. of shares by the acquiring company to the shareholders of…
Q: An investor puts up $5,000 but borrows an equal amount of money from his broker to double the amount…
A: Solution:Investor’s rate of return means the percentage of net earnings to own invested funds.
Q: Six years ago the Templeton Company issued 19-year bonds with a 13% annual coupon rate at their…
A: Here,ParticularsValuesFace value of the bond (PV) $1,000.00Coupon rate13.00%Time period…
Q: n 11-year bond of a firm in severe financial distress has a oupon rate of 10% and sells for $910.…
A: YTM refers to the total return that an investor will earn by holding a bond to maturity. YTM makes…
Q: Mary Ott is going to borrow $5,800 for 60 days and pay $159 interest. What is the effective rate of…
A: Solution:Effective rate of interest means the annual effective rate of interest after effect of all…
Q: An index consists of the following securities. What is the ending value-weighted index? You can…
A: An index is a collection or basket of financial instruments, such as stocks, derivatives, or other…
Q: a CAPM world. If a firm has positive leverage, the Beta of its equity is higher than its unlevered…
A: Beta of firm shows the risk related to the overall risk of the market and beta shows risk and…
Q: Net present value method, present value index, and analysis for a service company Continental…
A: NPV is defined as the sum of the present values of all future cash inflows less the sum of the…
Q: What are annuities received? Also, how does the calculation of expected return and the calculation…
A: It is considered as a payment stream of an equal amount which would likely occur at a regular time…
Q: Which asset in the following table has the most market risk (also known as systematic or non-…
A: Systematic risk refers to the type of risk which has an impact on the entire market. Also known as…
Q: Assume that between 2005 and 2015 the price level doubled. What is the approximate average annual…
A: Solution:Average annual rate means the rate on per annum basis.We know, average annual rate =…
Q: Create the amortization schedule for a loan of $5,600, paid monthly over two years using an APR of 8…
A: Present value of annuity is computed by following formula:-PV = A*wherePV = present value of…
Q: What do their observed discount factors look like for t=0, t=1, and t=2?
A: The time value of money technique explains the concept that the rupee received today is worth more…
Q: ris owns a stock with an annualized return of 8.45 percent. If the risk-free rate is 2.25 percent,…
A: Rp (Return on stock) = 8.45% or 0.0845 in decimal Rf (Risk-free rate) = 2.25% or 0.0225 in decimal…
Edwards Construction currently has debt outstanding with a market value of $75,000. The company has a WACC of 9 percent and has EBIT of $8,750 in the next year. The tax rate is 20%. What is the debt-to-value ratio if the EBIT’s growth rate is 5%?
a. 42.86%
b. 39.33%
c. 96.42%
d. 32.45%
Step by step
Solved in 3 steps
- Ogier Incorporated currently has $800 million in sales, which are projected to grow by 10% in Year 1 and by 5% in Year 2. Its operating profitability ratio (OP) is 10%, and its capital requirement ratio (CR) is 80%? What are the projected sales in Years 1 and 2? What are the projected amounts of net operating profit after taxes (NOPAT) for Years 1 and 2? What are the projected amounts of total net operating capital (OpCap) for Years 1 and 2? What is the projected FCF for Year 2?Payne Products had $1.6 million in sales revenues in the most recent year and expects sales growth to be 25% this year. Payne would like to determine the effect of various current assets policies on its financial performance. Payne has $1 million of fixed assets and intends to keep its debt ratio at its historical level of 60%. Payne’s debt interest rate is currently 8%. You are to evaluate three different current asset policies: (1) a restricted policy in which current assets are 45% of projected sales, (2) a moderate policy with 50% of sales tied up in current assets, and (3) a relaxed policy requiring current assets of 60% of sales. Earnings before interest and taxes are expected to be 12% of sales. Payne’s tax rate is 40%. What is the expected return on equity under each current asset level? In this problem, we have assumed that the level of expected sales is independent of current asset policy. Is this a valid assumption? Why or why not? How would the overall risk of the firm vary under each policy?The Berndt Corporation expects to have sales of 12 million. Costs other than depreciation are expected to be 75% of sales, and depreciation is expected to be 1.5 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Berndts federal-plus-state tax rate is 40%. Berndt has no debt. a. Set up an income statement. What is Berndts expected net income? Its expected net cash flow? b. Suppose Congress changed the tax laws so that Berndts depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow? c. Now suppose that Congress changed the tax laws such that, instead of doubling Berndts depreciation, it was reduced by 50%. How would profit and net cash flow be affected? d. If this were your company, would you prefer Congress to cause your depreciation expense to be doubled or halved? Why?
- Edwards Construction currently has debt outstanding with a market value of $75,000. The company has a WACC of 10 percent. Tax rate is 20%. The company just released its EBIT of $8,750 for the preceding financial year (t = 0). What is the debt-to-value ratio if the company’s growth rate is 7 percent? Group of answer choices 0.23 0.3 0.21 0.7Edwards Construction currently has debt outstanding with a market value of $75,000. The company has a WACC of 10 percent. Tax rate is 20%. The company just released its EBIT of $8,750 for the preceding financial year (t = 0). What is the debt-to-value ratio if the company's growth rate is 7 percent? O 0.7 O 0.23 O 0.21 O 0.3ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 9 years to maturity that is quoted at 107 percent of face value. The issue makes semiannual payments and has an embedded cost of 6.6 percent annually. What is the company's pretax cost of debt? If the tax rate is 24 percent, what is the aftertax cost of debt? Pretax cost of debt: __________% Aftertax cost of debt: __________%
- Viserion, Incorporated, is trying to determine its cost of debt. The firm has a debt issue outstanding with 28 years to maturity that is quoted at 106 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually. What is the company's pretax cost of debt? multiple choice 1 5.57% 6.69% 4.24% 6.13% 5.02% If the tax rate is 24 percent, what is the aftertax cost of debt? multiple choice 2 4.24% 3.81% 4.66% 5.93% 5.57%A company is financed with equity of $4.5 million and a bank loan of $2.5 million with an interest rate of 8.6% per annum. The EBIT is $1.12 million. The applicable tax rate is 19%. Use the above information to calculate the following: a) change in the return on equity and the degree of financial leverage given a 15% increase in EBIT next year, b) change in the return on equity and the degree of financial leverage given a 5% decrease in EBIT in the following year (the year following the year in which EBIT grew by 15%).Clam Shack is a seafood company based in Wellington. It currently has debt with a market value of $100,000. The company has a WACC of 9 percent and has EBIT of $9,000 in the next year. The tax rate is 20%. What is the growth rate of EBIT if the debt-value ratio is 50%? 7.2% 5.4% 8.4% 8.5%
- Company Y has a target debt ratio of 55%. Currently its debt ratio is 60% and it expects to revert to the target ratio in the near future. The company has a market cost of equity of 20%. While it has no bonds, it has interest payments of R1 000 000 on liabilities of R10 000 000. Assume the tax rate is 28%. What is the WACC for the company? Ⓒa. 6.36% b. 9.00% c. 12.33% d. 12.96%Battlefield is trying to determine its cost of debt. The firm has a debt issue outstanding with seven years to maturity that is quoted at 113% of face value. The issue makes semiannual payments and has an embedded coupon payment of 6.4% annually. If the tax rate is 38%, what is the aftertax cost of debt? 2.01 2.76 2.63 1.89 1.82Nobleford Inc. is trying to determine its cost of debt. The firm has a debt issue outstanding with 23 years to maturity that is quoted at 97% of face value. The issue makes semiannual payments and has an embedded cost of 5% annually. Assume the par value of the bond is $1,000. What is the company’s pre-tax cost of debt? If the tax rate is 35%, what is the after-tax cost of debt?
