It is December 31. Last year, Galaxy Corporation had sales of $80,000,000, and it forecasts that next year's sales will be $86,400,000. Its fixed costshave been-and are expected to continue to be-$44,000,000, and its variable cost ratio is 10.00 %. Galaxy's capital structure consists of a $15 millionbank loan, on which it pays an interest rate of 12%, and 5,000,000 shares of outstanding common equity. The company's profits are taxed at amarginal rate of 35%.The following are the two principal equations that can be used to calculate a firm's DFL value:DFL (at EBIT = $X) =Given this information, complete the following sentences:Percentage Change in EPSPercentage Change in EBITConsider the following statement about DFL, and indicate whether or not it is correct.0 0DFL (at EBITSX) =•The company's percentage change in EBIT is. The percentage change in Galaxy's earnings per share (EPS) is• The degree of financial leverage (DFL) at $86,400,000 is. (Hint: Use the changes in EPS and EBIT that you computed to determine DFL.)FalseTrueEDITPreferred(1-Tax ReAll other factors remaining constant, the larger the proportion of common equity used by the firm in its capital structure, the smaller thefirm's DFL..ERIT-Interest-

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It is December 31. Last year, Galaxy Corporation had sales of $80,000,000, and it forecasts that next year's sales will be $86,400,000. Its fixed costs. have been-and are expected to continue to be-$44,000,000, and its variable cost ratio is 10.00 %. Galaxy's capital structure consists of a $15 million. bank loan, on which it pays an interest rate of 12%, and 5,000,000 shares of outstanding common equity. The company's profits are taxed at a marginal rate of 35%. The following are the two principal equations that can be used to calculate a firm's DFL value: DFL (at EBIT SX) = Percentage Change in EPS Percentage Change in ERTY Given this information, complete the following sentences: The company's percentage change EB is The percentage change in Galaxy's earnings per share (EPS) is The degree of financial leverage (DFL) at $86,400,000 is DFL (at EBITSX)= EDIT EBIT-Interest- Pabord d (-fo . (Hint: Use the changes in EPS and EBIT that you computed to determine DFL.)

It is December 31. Last year, Galaxy Corporation had sales of $80,000,000, and it forecasts that next year's sales will be $86,400,000. Its fixed costs. have been-and are expected to continue to be-$44,000,000, and its variable cost ratio is 10.00 %. Galaxy's capital structure consists of a $15 million. bank loan, on which it pays an interest rate of 12%, and 5,000,000 shares of outstanding common equity. The company's profits are taxed at a marginal rate of 35%. The following are the two principal equations that can be used to calculate a firm's DFL value: DFL (at EBIT SX) = Percentage Change in EPS Percentage Change in ERTY Given this information, complete the following sentences: The company's percentage change EB is The percentage change in Galaxy's earnings per share (EPS) is The degree of financial leverage (DFL) at $86,400,000 is DFL (at EBITSX)= EDIT EBIT-Interest- Pabord d (-fo . (Hint: Use the changes in EPS and EBIT that you computed to determine DFL.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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It is December 31. Last year, Campbell Construction had sales of $80,000,000, and it forecasts that next year’s sales will be $76,000,000. Its fixed costs have been—and are expected to continue to be—$40,000,000, and its variable cost ratio is 21.00%. Campbell’s capital structure consists of a $15 million bank loan, on which it pays an interest rate of 8%, and 750,000 shares of common equity. The company’s profits are taxed at a marginal rate of 40%. The following are the two principal equations that can be used to calculate a firm’s DFL value: DFL (at EBIT = $X)=Percentage Change in EPSPercentage Change in EBITDFL (at EBIT = $X)=Percentage Change in EPSPercentage Change in EBIT DFL (at EBIT = $X)=EBITEBIT−Interest−Preferred Dividends(1 – Tax Rate)DFL (at EBIT = $X)=EBITEBIT−Interest−Preferred Dividends(1 – Tax Rate) Given this infromation, complete the following sentences: • The company’s percentage change in EBIT is ______(-12.26%/ -16.34%/ -13.62%) . • The percentage change…
The Karson transport company currently has net operating income of $495,000 and pays interest expenses of $198,000. The company plans to borrow $1.02 million on which the firm will pay 12 percent interest. The borrowed money will be used to finance an investment that is expected to increase the firm’s net operating income by $397,000 a year. A. What is Karson’s time interest earned ratio before the loan is taken out and the investment is made ? The times interest ratio is Round to two decimal places.
Magnum, Inc., projects next year's sales to be $20 million. Current sales are at $15 million, based on current assets of $7 million and fixed assets of $8 million. The firm's net profit margin is 5 percent after taxes. Magnum forecasts that current assets will rise in direct proportion to the increase in sales but that fixed assets will increase by only $150,000. Currently, Magnum has $1.5 million in accounts payable (which vary directly with sales), $7 million in long-term debt (due in 10 years), and common equity (including $4 million in retained earnings) totaling $6.5 million. Magnum plans to pay $500,000 in common stock dividends next year. What are Magnum's total financing needs (that is, total assets) for the coming year?
The XYZ Corporation expects to have sales of $15 million this year. Costs other than depreciation are expected to be 80% of sales, and depreciation is expected to amount to $1 million. XYZ is using $5 million debt at 10%. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. XYZ's federalolus - state tax rate is 30%. What is XYZ's expected cash flow from operations? (Assume no other changes occurred.)
An investment of $200,000 is required to expand a certain production facility in a manufacturing company. The firm estimates that labor costs will be $150,000 for the first year but will increase at the rate of 8% over the previous year’s expenditure. Material costs, on the other hand, will be $400,000 for the first year but will increase at the rate of 10% per year due to inflation. If the firm’s inflation-free interest rate (i′) is 20% and the average general inflation rate (f) is expected to be 15% over the next 5 years, determine the total present equivalent operating expenses (with no tax consideration) for the project. Please show step by step answer.
The karson transport company currently has net operating income of $508,000 and pays interest expenses of $205,000. The company plans to borrow $1.03 million on which the firm will pay 11 percent interest. The borrowed money will be used to finance an investment that is expected to increase the firm’s net operating income by $404,000 a year. B. What effect will the loan and the investment have on the firm’s time interest earned ratio? The new times interest ratio is Round to two decimal places.
Titusville Petroleum Company is considering pledging its receivables to finance an increase in working capital. Citizens National Bank will lend the company 85 percent of the pledged receivables at 3 percentage points above the prime rate (currently 6%). The bank charges a service fee equal to 1.4 percent of the pledged receivables. The interest costs and the service fee are payable at the end of the borrowing period. Titusville has $2 million in receivables that can be pledged as collateral. The average collection period is 40 days. Assume that there are 365 days per year. Determine the annual financing cost to Titusville of this receivables-backed loan. Round your answer to two decimal places. %
Parramore Corp has $11 million of sales, $2 million of inventories, $2 million of receivables, and $2.75 million of payables. Its cost of goods sold is 70% of sales, and it finances working capital with bank loans at a 7% rate. Assume 365 days in year for your calculations. How much cash would be freed up, if Parramore could lower its inventories and receivables by 8% each and increase its payables by 8%, all without affecting sales or cost of goods sold? Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000. Do not round intermediate calculations. Round your answer to the nearest dollar. I keep getting 100,000 and its says its wrong can you show me what I am doing wrong
Last year, Cayman Corporation had sales of $26 million, total variable costs of $15 million, and total fixed costs of $5,000,000. In addition, they paid $4 million in interest to bondholders. Cayman has a marginal tax rate of 21 percent. If Cayman's sales increase by 15%, what should be the increase in operating income?
MLX has annual sales of $320 million per year and has calculated the collection float to be 12 days. If MLX is currently paying 9.35% on its line of credit, what amount of interest expense could be saved if the collection float is reduced by 3 days? (Assume 365 days per year.)
) You are asked to estimate the RAROC of a bank's $100 million loan business, 7.5% of which is the economic capital. The average interest rate is 8%. All the loans have the same default probability of 1.5% with a loss given default of 60%. Operating costs are $15 million, and the funding cost of the business is $30 million. The economic capital is invested and earns 6%.
Simile Inc. has a total annual cash requirement of P9,075,000 which are to be paid uniformly. Simile has the opportunity to invest the money at 24% per annum. The company spends, on the average, P40 for every cash conversion to marketable securities. What is the Total Conversion Cost?

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