a privately start-up ventory management to rm plans to sell its shares to the public within next 18 months and wants to get some idea about w e firm's stock will be worth.An investment banker who specializes in assisting high-tech start-up o public has evaluated and developed the following data: ales perating Income (EBIT) 1 100,000 16,000 2 Years 115,000 18,400 3 132,250 21,160 4 132,250 21,160
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- 35. White Sails Inn hired you as a consultant to help estimate its cost of capital. You have What is the cost of equity for this company, White Sails Inn, from retained earnings? been provided with the following data: D, = $0.90; Po= $27.50; and g = 8.00%. a) 10.41% b) 10.96% C) 11.53% 12.11% 40. 36. Royal Hair Salon & Spa has a target debt to equity ratio of 0.55. Its cost of equity is 15.4%, and its pre-tax cost of debt is 7.8%. If the tax rate is 32% what is this company's WACC? a) 11.1% b) 11.5% c) 11.3% d) 11.8% 37. A firm has a cost of equity of 13%, a cost of preferred of 11%, and an after-tax cost of debt of 6%. Given this, which one of the following will increase the firm's weighted average cost of capital? a) Increasing the firm's tax rate. b) Increasing the firm's beta. c) Increasing the debt-equity ratio. d) Issuing new bonds at par. 38. Which of the following is true about risk and return? a) Riskier assets will, on average, earn lower returns. b) The reward for bearing…Joy wants to invest his funds in shares in one of the two existing manufacturing companies. The following information about the dividend paid during the seven years of the Year Brown Company Avel Company 2000 500 300 2001 600 557 2002 665 615 2003 675 640 2004 785 790 2005 800 815 2006 815 795 If you as an investment consultant who is conducting an analysis of the two companies, with Using trend analysis, which company would you recommend to Joy for his investment in 2010? (work with complete procedure)Charles Jones is evaluating Reliant Home Furnishings by using a three-stage growth model. He has accumulated the following information: · Current FCFF $745 million · Outstanding shares 309.39 million · Equity beta 0.90, · risk-free rate 5.04 percent; · equity risk premium 5.5 percent · Cost of debt 7.1 percent · Marginal tax rate 34 percent · Capital structure 20 percent debt, 80 percent equity · Long-term debt $1.518 billion · Growth rate of FCFF - 8.8 percent annually in stage 1, years 1–4 - 7.4 percent in year 5, - 6.0 percent in year 6, - 4.6 percent in year 7 - 3.2 percent in year 8 and thereafter From the information that Jones has accumulated, estimate the following: b) WACC. c) Total value of the fi rm.
- S Examine the following book-value balance sheet for University Products Incorporated. The preferred stock currently sells for $15 per share and pays a dividend of $3 a share. The common stock sells for $10 per share and has a beta of 0.9. There are 4 million common shares outstanding. The market risk premium is 8%, the risk-free rate is 4%, and the firm's tax rate is 21%. Assets Cash and short-term securities $ 3.0 Accounts receivable. 3.0 Inventories Plant and equipment Total 7.0 25.0 $ 38.0 a. Market debt-to-value ratio b. WACC BOOK-VALUE BALANCE SHEET (Figures in 5 millions) Liabilities and Net Worth Bonds, coupon 5%, paid annually (maturity 10 years, current yield to maturity = 7%) Preferred stock (par value $20 per share) Common stock (par value $0.10) Additional paid-in stockholders' equity Retained earnings Total a. What is the market debt-to-value ratio of the firm? b. What is University's WACC? Note: For all the requirements, do not round intermediate calculations. Enter your…Kalil, Inc. (a for-profit college), has the following data: average stock return (market rate of return) is 7%; market risk premium is 5%. and b = 0. What is the firm's cost of equity (k) from retained earnings based on the CAPM? 12How is AIC currently valued in the stock market? (under, over, fairly) Your firm's client makes her investment decisions based on research report and requires 30% margin safety. What would be her investment decision if AIC price falls to $40?
- you are considering purchasing the preferred stock of a firm but are concerned about its capacity to pay dividend. to help allay that fear, you compute the time-preferred-dividend-eraned ratio for the past three years from the following data taken from the firms financial statements. Year 20x1 20X2 20X3 Operating income $12,000,000 $15,000,000 $17,000,000 Interest 3,000,000 5,900,000 11,000,000 Taxes 4,000,000 5,400,000 4,000,000 Preferred dividends 1,000,000 1,000,000 1,500,00 Common dividends 3,000,000 2,000,00 - What does your analysis about the firm's capacity to pay preferred stock dividens?The following financial information is available on Rawls Manufacturing Company: Current per share market price $48.00 Current per share dividend $3.50 Current per share earnings $6.00 Beta 1.1 Expected rate of return on market 12.0% Risk-free rate 6.0% Expected long-term growth rate 5.0% Rawls can issue new common stock to net the company $44 per share. Determine the cost of external equity capital using the dividend capitalization model approach. (Compute the answer to the nearest 0.1%.) a 12.6% b. 14.4% c.13.4% d.12.7%Assume you are given the following information for firms A and B: A В $1,563,400.00 $2,357,316.00 $2,051,347.00 $1,257,431.00 Price $31.25 $31.25 i 13.52% 13.52% EBIT $97,347.00 $97,347.00 No taxes How do you replicate an investment in 79% of stock B by using stock A? What is the return of the replicating strategy?
- Based on the following information you have collected, what is the sustainable growth rate (SGR) for Leo's Photography Studio? Profit Margin Debt/Equity Ratio Capital Intensity Ratio Net Income Dividends O A. O B. O C. O D. 12.42% 8.52% 15.15% 13.63% 7.1% 0.60 0.75 $48,000 $10,000To help them estimate the company's cost of capital, Smithco has hired you as a consultant. You have been provided with the following data about the company's stock: D1 $1.45; PO = $25; and g = 6.50% (constant). What is the cost of common from issuing new stock, assuming the flotation cost is 10% of the stock price? = 13.59% 11.10% 12.94% 11.68% 12.30%Triano Train Transports shows the following on their most recent balance sheet: Current Assets: 1871Total Liabilities: 1994Inventory: 458Net working Capital: 1111Total Assets: 3007Total Equity: 1636Total Debt: 2602Earnings per Share: 3.22Market Value: 60.03 You want to identify if the company is highly leveraged and therefore a higher risk for you as an investor. Specifically, you want to find out how much debt the company has in comparison to each dollar of equity. Determine which ratio to use, calculate it and put the number in the answer.