Problem 16-10 Spreadsheet Problem: Standard Deviation in EPS after Leveraging with Taxes (LG16-4)NoNuns Companies has a 21 percent tax rate and has $346.80 million in assets, currently financed entirely with equity. Equity is worth$34 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBITdepend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shownbelow:StateProbability of stateExpected EBIT in stateRecession$5,406,000Standard deviation in EPS0.25Average0.55$ 12,342,000%BoomThe firm is considering switching to a 25-percent-debt capital structure and has determined that it would have to pay an 8 percentyield on perpetual debt in either event. What will be the standard deviation in EPS if NoNuns switches to the proposed capital structureand can take full advantage of the debt interest tax shields?Note: Do not round intermediate calculations and round your final answer to the nearest whole dollar amount.0.20$ 19,380,000

Expected EPS is computed as the summation of the multiplication of probability percentage and EPS in…

Problem 16-10 Spreadsheet Problem: Standard Deviation in EPS after Leveraging with Taxes (LG16-4) NoNuns Companies has a 21 percent tax rate and has $346.80 million in assets, currently financed entirely with equity. Equity is worth $34 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Probability of state Expected EBIT in state. Recession Standard deviation in EPS 0.25 $ 5,406,000 Average 0.55 $ 12,342,000 % Boom The firm is considering switching to a 25-percent-debt capital structure and has determined that it would have to pay an 8 percent yield on perpetual debt in either event. What will be the standard deviation in EPS if NoNuns switches to the proposed capital structure and can take full advantage of the debt interest tax shields? Note: Do not round intermediate calculations and round your final answer to the nearest whole dollar amount. 0.20 $ 19,380,000

Problem 16-10 Spreadsheet Problem: Standard Deviation in EPS after Leveraging with Taxes (LG16-4) NoNuns Companies has a 21 percent tax rate and has $346.80 million in assets, currently financed entirely with equity. Equity is worth $34 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Probability of state Expected EBIT in state. Recession Standard deviation in EPS 0.25 $ 5,406,000 Average 0.55 $ 12,342,000 % Boom The firm is considering switching to a 25-percent-debt capital structure and has determined that it would have to pay an 8 percent yield on perpetual debt in either event. What will be the standard deviation in EPS if NoNuns switches to the proposed capital structure and can take full advantage of the debt interest tax shields? Note: Do not round intermediate calculations and round your final answer to the nearest whole dollar amount. 0.20 $ 19,380,000

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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Q. Suppose a company uses only debt and internal equity to finance its capital budget and uses CAPM to compute its cost of equity. Company estimates that its WACC is 12%. The capital structure is 75% debt and 25% internal equity. Before tax cost of debt is 12.5 % and tax rate is 20%. Risk free rate is rRF = 6% and market risk premium (rm - rRF ) = 8%: What is the beta of the company?
Question 11 For this and the next 2 questions: A firm has total assets of $15.4 million and a debt/equity ratio of 0.825. The firm's sales are $11 million, and it has total fixed costs of $4.4 million. Suppose also the firm's EBIT is $2.2 million, its tax rate is 45%, and the interest rate on all of its debt is 10%. How much debt does the firm have on its balance sheet? 1) $8.43836 million 2) $6.96164 million 3) $4.4825 million 4) Not enough information Question 12 Calculate the firm's equity multiplier ratio 1) 0.54795 2) 0.22727 3) 1.825 4) None of the above
Question North-Ireland Cooling’s management has made the projections shown in Table below. Use this table as a starting point to value the company. The WACC for North-Ireland Cooling is 10% and the long-run growth rate after year 4 is 7%. The company has $15,000 debt and 850 shares outstanding. Tax rate is 0.30. a) Calculate the free cash flows to the firm b) What is the firm value? c) What is the equity value? d) What is the intrinsic value of share? Show your steps in your calculations. Please answer as soon as possible
QUESTION 17 Assume the firm has a constant dividend payout ratio and a projected sales increase of 10 percent. All costs, assets, and current liabilities vary directly with sales. The firm is currently at full production. What is the external financing need? Currently, the firm's sales =$4,700, net income is $420, total assets=7890, dividends=125, A/P =790, LTD= 3130, and common stock 2780, and the Balance-sheet retained=1190. $462.00 O $385.50 $324.50 O $137.50
MINDTAP Q Search this cou Check My Work еВook The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 18%, its before-tax cost of debt is 8%, and its marginal tax rate is O 25%. Assume that the firm's long-term debt sells at par value. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1,183. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Assets Liabilities And Equity Cash $ 120 Accounts payable and accruals $ 10 Accounts receivable 240 Short-term debt 43 Inventories 360 Long-term debt 1,140 Plant and equipment, net 2,160 Common equity 1,687 Total assets $2,880 Total liabilities and equity $2,880 Calculate Paulson's WACC using market-value weights. Do not round intermediate calculations. Round your answer to two decimal places. 13.86 % Hide Feedback Incorrect Check My Work O- Icon Key 80 DII DD E3 F4 F6 F7 F10 F12 %23 $ & * 4 5 6 7 8 9 del E R Y { P G H K V B N M -
Plz complete using excel showing formula of work !! The common stock of ABX, Inc. has a beta of 0.90. The Treasury bill rate is 4% and the market risk premium is estimated at 8%. The debt-to-equity ratio of the company is 0.35, the cost of debt is 6%, and the tax rate is 21%. The company is considering a project that will result in initial after-tax cash savings of $5 million at the end of the first year, and these savings will grow at a rate of 4% per year indefinitely. The project is less risky than the usual project the firm undertakes. Management uses the subjective approach and applies an adjustment factor of -1% to the overall cost of capital for similar projects. If the project requires an initial investment of $20 million, what is the NPV?
Problem 8-20 Spreadsheet Problem: P/E Model and Cash Flow Valuation (LG8-5, LG8-7) Suppose that a firm's recent earnings per share and dividend per share are $3.15 and $2.60, respectively. Both are expected to grow at 6 percent. However, the firm's current P/E ratio of 27 seems high for this growth rate. The P/E ratio is expected to fall to 23 within five years. Compute the dividends over the next five years. Compute the value of this stock price in five years. Calculate the present value of these cash flows using an 8 percent discount rate. Complete this question by entering your answers in the tabs below. Dividends Stock price Present value Compute the dividends over the next five years. Note: Do not round intermediate calculations. Round your answers to 3 decimal places. Years First year Second year Third year Fourth year Fifth year Dividends Dividends Stock price
4.1 Calculating EFN Based on the following information for the Skandia Mining Company, what is EFN if sales are predicted to grow by 10 percent? Use the percentage of sales approach and assume the company is operating at full capacity. The payout ratio is constant. Income Statement Sales Costs Taxable income Taxes (34%) Net income Dividends Addition to retained earnings $4,250.0 3,875.0 $ 375.0 127.5 $ 247.5 $82.6 164.9 SKANDIA MINING COMPANY Financial Statements Assets Current assets Net fixed assets Total assets Balance Sheet $ 900.0 2,200.0 $3,100.0 Liabilities and Owners' Equity Current liabilities Long-term debt Owners' equity Total liabilities and owners' equity 4.2 EFN and Capacity Use Based on the information in Problem 4.1, what is EFN, assuming 60 percent capacity usage for net fixed assets? Assuming 95 percent capacity? 4.3 Sustainable Growth Based on the information in Problem 4.1, what growth rate can Skandia maintain if no external financing is used? What is the…
13. Using Weighted Average Cost of Capital (WACC) ignoring taxes compute the cost of capital of a company with debt ratio of 0.75:1 and is paying yearly average interest for its loans of 4% and dividend rate of 5% yearly. a) 4.00% b) 4.25% c) 4.5% d) 5.00% 14. Using capital Asset Pricing Method (CAPM) compute for the cost of capital (equity) with risk free rate of 5%, market return of 12% and Beta of 1.3. a) 14.01% b) 14.10% c) 14.00% d) 14.11% 15. Using capital Asset Pricing Method (CAPM) compute for the cost of capital (equity) with risk free rate of 4%, market return of 8% and Beta of 1.5. a) 10.00% b) 11.00% c) 12.00% d) 13.00%
Exercise 13.3 P416-445 a. Calculate the price of a firm with a plowback ratio of 0.60 if its ROE is 20%. Current earnings E₁, will be $5 per share, and k = 12.5%. b. What if ROE is 10%, which is less than the market capitalization rate? Compare the firm's price in this instance to that of a firm with the same ROE and E, but a plowback rate of b = 0.
Chapter 10 Evaluation Calculating Weighted Average Cost of Capital and Economic Value Added (EVA) Ignacio, Inc., had after-tax operating income last year of $1,199,500. Three sources of financing were used by the company: $2 million of mortgage bonds paying 4 percent interest, $4 million of unsecured bonds paying 6 percent interest, and $10 million in common stock, which was considered to be relatively risky (with a risk premium of 8 percent). The rate on long-term treasuries is 3 percent. Ignacio, Inc., pays a marginal tax rate of 30 percent. Required: 1. Calculate the after-tax cost of each method of financing. Enter your answers as decimal values rounded to three places. For example, 4.36% would be entered as ".044". Mortgage bonds 0.028 ✓ Unsecured bonds 0.042 ✔ Common stock 8.64 X % eBook 2. Calculate the weighted average cost of capital for Ignacio, Inc. Round intermediate calculations to four decimal places. Round your final answer to four decimal places before converting to a…
Ch. 11 Profitabiity Index Please solve the following and explain in detail. Calderon Kitchen Supplies is planning to invest $210,000 in a product. The product is expected to generate a net present value of $56,700. The profitablity index is???

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