:34Pompeii Pizza Club owns three identical restaurants popular for their specialty pizzas.Each restaurant has a debt-equity ratio of 40 percent and makes interest payments of$45,000 at the end of each year. The cost of the firm's levered equity is 18 percent. Eachstore estimates that annual sales will be $1.32 million; annual cost of goods sold will be$760,000; and annual general and administrative costs will be $420,000. These cashflows are expected to remain the same forever. The corporate tax rate is 23 percent.a. Use the flow to equity approach to determine the value of the company's equity. (Donot round intermediate calculations and enter your answer in dollars, not millionsof dollars, rounded to 2 decimal places, e.g., 1,234,567.89)b. What is the total value of the company? (Do not round intermediate calculations andenter your answer in dollars, not millions of dollars, rounded to 2 decimal places,e.g., 1,234,567.89)a. Value of the company's equityb. Value of the company

a "company's value" means how much the business is worth in financial and non-financial terms. It…

Answered: Pompeii Pizza Club owns three identical…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 20P

See similar textbooks

Similar questions

7. Jayden and Ziad own four identical pizza shops in downtown Newark. Each shop has a debt-to- equity ratio of 35 percent and makes interest payments of $52,000 at the end of each year. The cost of the firm's levered equity is 16 percent. Each store estimates that annual sales will be $1,450 million. The annual cost of goods sold will be $780,000. The owners estimated annual SG&A costs will be $450,000. Note also that these cash flows are expected to remain the same forever. Estimated corporate tax is 21 percent. A) Use the flow to equity approach to determine the value of the company's equity. B) Determine the total value of J&Z Pizza shops to date.
Sam Holdings is planning to open a new wholesaling operation. The target operating profit margin is 25%. The unit contribution margin will be 40% of sales. Average annual sales are forecast to be $4,250,000. The firm's total asset is $8,750,000 with debt-asset ratio of 40%. The firm pays 12% interest on the debt and has 100,000 common stocks. The firm is subjected to corporate tax rate of 28%. How much is the fixed cost for the operation (assuming 25% target operating profit margin is achieved). What is the breakeven point in dollars for the firm? What is the degree of operating leverage (DOL)? What is the degree of combined/total leverage (DCL/DTL)? (To Be Solve) What will be its earnings per share if average annual sales drop by 20%?
Sam Holdings is planning to open a new wholesaling operation. The target operating profit margin is 25%. The unit contribution margin will be 40% of sales. Average annual sales are forecast to be $4,250,000. The firm's total asset is $8,750,000 with debt-asset ratio of 40%. The firm pays 12% interest on the debt and has 100,000 common stocks. The firm is subjected to corporate tax rate of 28%. How much is the fixed cost for the operation (assuming 25% target operating profit margin is achieved). What is the breakeven point in dollars for the firm? What is the degree of operating leverage (DOL)? What is the degree of combined/total leverage (DCL/DTL)? What will be its earnings per share if average annual sales drop by 20%?
Sam Holdings is planning to open a new wholesaling operation. The target operating profit margin is 25%. The unit contribution margin will be 40% of sales. Average annual sales are forecast to be $4,250,000. The firm's total asset is $8,750,000 with debt-asset ratio of 40%. The firm pays 12% interest on the debt and has 100,000 common stocks. The firm is subjected to corporate tax rate of 28%. What is the degree of combined/total leverage (DCL/DTL)?
Stevenson's Bakery is an all-equity company that has projected perpetual earnings before interest and taxes of $43,700 a year. The cost of equity is 15.2 percent, and the tax rate is 22 percent. The company can borrow money at 7.15 percent. If the company borrows $50,000, what will be its levered value? Multiple Choice O O O O $229,507 $187,613 $203,682 $189,919 $235,250
Kottinger's Kamp Supplies is considering an investment in new manufacturing equipment. The equipment costs $220,000 and will provide annual after-tax inflows of $50,000 at the end of each of the next seven years. The firm's market value debt/equity ratio is 25%, its cost of equity is 14%, and its pre-tax cost of debt is 7%. The flotation costs of debt and equity are 3% and 9%, respectively. The firm's combined marginal federal and provincial tax rate is 40%. Assume the project is of approximately the same risk as the firm's existing operations. What is Kottinger's weighted average cost of capital? Multiple Choice O O 8.91% 11.14% 10.86% 12.04% O 9.99%
Sam Holdings is planning to open a new wholesaling operation. The target operating profit margin is 25%. The unit contribution margin will be 40% of sales. Average annual sales are forecast to be $4,250,000. The firm's total asset is $8,750,000 with debt-asset ratio of 40%. The firm pays 12% interest on the debt and has 100,000 common stocks. The firm is subjected to corporate tax rate of 28%. What will be its earnings per share if average annual sales drop by 20%?
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 = $X) = Given this information, complete the following sentences: Percentage Change in EPS Percentage Change in EBIT Consider the following statement about DFL, and indicate whether or not it is correct. 0 0 DFL (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…
The Hurricane Lamp Company forecasts that next year’s sales will be $6 million. Fixed operating costs are estimated to be $800,000, and the variable cost ratio (that is, variable costs as a fraction of sales) is estimated to be 0.75. The firm has a $600,000 loan at 12 percent interest. It has 20,000 shares of $2.5 preferred stock and 40,000 shares of common stock outstanding. Hurricane Lamp is in the 40 percent corporate income tax bracket. Forecast Hurricane Lamp’s earnings per share (EPS) for next year. Develop a complete income statement using the revised format illustrated in Table 14.1. Then determine what Hurricane Lamp’s EPS would be if sales were 12 percent above the projected $6 million level. Round your answers to the nearest cent.EPS1: $ EPS2: $ Calculate Hurricane Lamp’s degree of operating leverage (DOL) at a sales level of $6 million using the following formulas. The definitional formula (Equation 14.1). Round your answer to three decimal places. The simpler,…
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 S&H construction company expects to have total sales next year totaling $14,500,00 In addition, the firm pays taxes at 35 percent and will owe $318,000 in interest expenses. Based on last year’s operations the firm’s management predicts that its cost of goods sold will be 58 percent of sales and operating expenses will total 32 percent. What is your estimate of the firm’s net income after taxes for the coming year ? Complete the pro-forma income statement below Round to the nearest dollar Pro-forma income statement Sales Cost of goods sold Gross profit Operating expenses Net operating expenses Interested expenses Earnings before taxes Taxes Net income
Hebner Housing Corporation has forecast the following numbers for this upcoming year: Sales = $1,000,000. Cost of goods sold = 600,000. Interest expense = 100,000. Net income = 180,000.The company is in the 40 percent tax bracket. Its cost of goods sold always represents 60 percent of its sales. That is, if the company’s sales were to increase to $1.5 million, its cost of goods sold would increase to $900,000. The company’s CEO is unhappy with the forecast and wants the firm to achieve a net income equal to $240,000. In order to achieve this level of net income, what level of sales will the company have to achieve? Assume that Hebner’s interest expense remains constant.

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

EBK CFIN

Finance

ISBN:

9781337671743

Author:

BESLEY

Publisher:

CENGAGE LEARNING - CONSIGNMENT

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

EBK CFIN

Finance

ISBN:

9781337671743

Author:

BESLEY

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SEE MORE TEXTBOOKS