Here are alphas and betas for Company X and Company Y for the 60 months ending April 2019. Alpha is expressed as a percent per month. A month later, the market is up by 5%, X is up by 6% and is up by 3%. (3a) What is the abnormal rate of return for X and Y? ] Alpha Beta X 0.57 1.08 0.46 0.65 The table below shows a condensed income statement and balance sheet for a plant. Income Statement Assets at 31 December 2018 Revenue 56.66 Net working capital 7.08 Raw materials cost 18.72 Operating cost 21.09 Depreciation Investment plant & equipment 69.33 4.50 Less accumulated depreciation 12.35 Net plant & equipment 21.01 Pretax income 48.32 Tax at 35% 4.32 Net income 8.03 Total assets 55.40 (3b) Calculate the plant's EVA. Assume the cost of capital is 9%. (3c) Assume now that the plant could be sold to another company for $95 million. How should this fact change your calculation of EVA? Explain your answer
Here are alphas and betas for Company X and Company Y for the 60 months ending April 2019. Alpha is expressed as a percent per month. A month later, the market is up by 5%, X is up by 6% and is up by 3%. (3a) What is the abnormal rate of return for X and Y? ] Alpha Beta X 0.57 1.08 0.46 0.65 The table below shows a condensed income statement and balance sheet for a plant. Income Statement Assets at 31 December 2018 Revenue 56.66 Net working capital 7.08 Raw materials cost 18.72 Operating cost 21.09 Depreciation Investment plant & equipment 69.33 4.50 Less accumulated depreciation 12.35 Net plant & equipment 21.01 Pretax income 48.32 Tax at 35% 4.32 Net income 8.03 Total assets 55.40 (3b) Calculate the plant's EVA. Assume the cost of capital is 9%. (3c) Assume now that the plant could be sold to another company for $95 million. How should this fact change your calculation of EVA? Explain your answer
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter14: Valuation: Market-based Approach
Section: Chapter Questions
Problem 20PC
Related questions
Question
![Here are alphas and betas for Company X and Company Y for the 60 months ending April 2019.
Alpha is expressed as a percent per month. A month later, the market is up by 5%, X is up by 6% and
Y is up by 3%.
(3a) What is the abnormal rate of return for X and Y?
]
Alpha Beta
X 0.57 1.08
Y 0.46 0.65
The table below shows a condensed income statement and balance sheet for a plant.
Income Statement
Assets at 31 December 2018
Revenue
56.66 Net working capital
7.08
Raw materials cost 18.72
Operating cost 21.09
Depreciation
Investment plant & equipment 69.33
4.50 Less accumulated depreciation
Net plant & equipment
21.01
Pretax income
12.35
48.32
Tax at 35%
4.32
Net income
8.03 Total assets
55.40
(3b) Calculate the plant's EVA. Assume the cost of capital is 9%.
(3c) Assume now that the plant could be sold to another company for $95 million. How should this
fact change your calculation of EVA? Explain your answer](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8d7c214d-32ac-44f1-b249-90701abd866f%2F20ed1640-d35c-45c6-8d2f-5d2bae1369d4%2Fsv1v8uj_processed.png&w=3840&q=75)
Transcribed Image Text:Here are alphas and betas for Company X and Company Y for the 60 months ending April 2019.
Alpha is expressed as a percent per month. A month later, the market is up by 5%, X is up by 6% and
Y is up by 3%.
(3a) What is the abnormal rate of return for X and Y?
]
Alpha Beta
X 0.57 1.08
Y 0.46 0.65
The table below shows a condensed income statement and balance sheet for a plant.
Income Statement
Assets at 31 December 2018
Revenue
56.66 Net working capital
7.08
Raw materials cost 18.72
Operating cost 21.09
Depreciation
Investment plant & equipment 69.33
4.50 Less accumulated depreciation
Net plant & equipment
21.01
Pretax income
12.35
48.32
Tax at 35%
4.32
Net income
8.03 Total assets
55.40
(3b) Calculate the plant's EVA. Assume the cost of capital is 9%.
(3c) Assume now that the plant could be sold to another company for $95 million. How should this
fact change your calculation of EVA? Explain your answer
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
![Financial Reporting, Financial Statement Analysis…](https://www.bartleby.com/isbn_cover_images/9781285190907/9781285190907_smallCoverImage.gif)
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning
![Financial Reporting, Financial Statement Analysis…](https://www.bartleby.com/isbn_cover_images/9781285190907/9781285190907_smallCoverImage.gif)
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning