A company has annual after-tax operating cash flows of P2,000,000 per year which are expected to continue in perpetuity. The company has a cost of equity of 10%, a before tax cost of debt of 5% and an after tax weighted average cost of capital of 8% per year. Corporation tax is 20%. What is the theoretical value of the company
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A company has annual after-tax operating
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- 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?A company has annual after-tax operating cash flows of P2,000,000 per year which are expected to continue in perpetuity. The company has a cost of equity of 10%, a before tax cost of debt of 5% and an after tax weighted average cost of capital of 8% per year. Corporation tax is 20%. What is the theoretical value of the company? A. 40,000,000 B. 20,000,000 C. 25,000,000 D. 50,000,000A company has annual after-tax operating cash flows of P2,000,000 per year which are expected to continue in perpetuity. The company has a cost of equity of 10%, a before tax cost of debt of 5% and an after tax weighted average cost of capital of 8% per year. Corporation tax is 20%. What is the theoretical value of the company? Choices P25m P50m P20m P40m
- Calculate a firm's free cash flow if it has net operating profit after taxes of P60,000, depreciation expense of P7,000, an interest expense of P1,000, a net fixed asset investment of P30,000, a net current asset requirement of P15,000 and a tax rate of 30%.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%).PT. Sentosa Raya uses its own capital and debt capital. The agreed cost of debt is 10% and the interest to be paid on the debt is Rp. 3,000,000. The company earned an operating profit of Rp. 24,000,000 per year. The expected return is 30% per year. With these data, determine the value of the company and the company's cost of capital!
- Suppose a firm's tax rate is 25 %. What effect would a $ 11.4 million capital expense have on this year's earnings if the capital expenditure is depreciated at a rate of $ 2.28 million per year for five years? What effect would it have on next year's earnings?Happy Time Inc. is expected to generate the following cash flows for the next year, as shown in the table below. Happy Time now only has one outstanding debt with a face value of $110 million to be repaid in the next year. The current market value for the debt is $67 million. The tax rate is zero. If you invest in the corporate debt of Happy Time Inc. today, what is your expected percentage return on this investment? Cash flow in the next year Economy Probability Amount Boom 0.3 Normal 0.4 Recession 0.3 O 36.87% O -26.37% 64.8% O-16.63% $110 million $101 million $61 millionAn enterprise with a profit before interest and tax of 150,000, a compound leverage level of 3 and a financial leverage level of 1.5; What will be the profit before interest and tax if their sales increase by 8% next year?
- Suppose a firm's tax rate is 25%. a. What effect would a $9.05 million operating expense have on this year's earnings? What effect would it have on next year's earnings? b. What effect would a $10.2 million capital expense have on this year's earnings if the capital expenditure is depreciated at a rate of $2.04 million per year for five years? What effect would it have on next year's earnings? a. What effect would a $9.05 million operating expense have on this year's earnings? What effect would it have on next year's earnings? (Select all the choices that apply.) A. A $9.05 million operating expense would be immediately expensed, increasing operating expenses by $9.05 million. This would lead to a reduction in taxes of 25% x $9.05 million = $2.26 million. B. A $9.05 million operating expense would be immediately expensed, increasing operating expenses by $9.05 million. This would lead to an increase in taxes of 25% × $9.05 million = $2.26 million. C. Earnings would decline by $9.05…Suppose a firm's tax rate is 25%. a. What effect would a$9.85 million operating expense have on this year's earnings? What effect would it have on next year's earnings? b. What effect would an $8.95million capital expense have on this year's earnings if the capital is depreciated at a rate of $1.79 million per year for five years? What effect would it have on next year's earnings?Eagle Products’ EBIT is $500, its tax rate is 35%, depreciation is $25, capital expenditures are $65, and the planned increase in net working capital is $30. What is the free cash flow to the firm?