Answer in typing As a financial consultant, you are given the following information about twocompanies, one levered and one unlevered.Copy the table below to your answer sheet and fill in the missing figures. Show thesteps you used to calculate them. Assume that the corporate tax rate is 40% and allcash flows are perpetual.Before tax operating incomeInterest on debtCost of capital (WACC)Cost of Equity capitalCost of Debt capitalValue of equityValue of debtValue of firmUnlevered$10 0000Levered$10 000$2 50016%$22 5003

Concept. 1.Value of firm = net income ÷ cost of capital(WACC) 2. Value of firm = value of debt +…

Answered: As a financial consultant, you are…

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

Section: Chapter Questions

Problem 8QE

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You are given the financial information for the Unic Company: Earnings Before Interest and Tax (EBIT) = $126.58 Corporate tax rate (TC) = 0.21 Debt (D) = $500 Unlevered cost of capital (RU) = 0.20 The cost of debt capital is 10 percent. Question: Determine the value of Unic Company equity? Determine the cost of equity capital for Unic Company? Determine the WACC for Unic Company?
Using the financial statements mentioned above estimate the annual rate of interest paid by the corporation (cost of debt). Also, find the tax rate and capitalization ratio (proportions among equity and debt). Using these values that you have found estimate the annual weighted cost of capital (WACC) of the corporation.
If two companies have exact same PBIT but one of them has some debt finance, would they pay same of amount of tax? Please demonstrate with Income Statement Extract. You can use numbers of your choice
B.E. Kemper, LLC (KEMPER) is a custom parts fabricator supporting the classic auto and recreational marine industries. The company is evaluating a proposal by its Marketing department to develop one-of-a-kind, customize parts for resto-mod professionals and the hobbyist in their desire for that special, unique "new" old car/truck. This approach will require the expertise of design artists and engineers working with the restorer and the need for custom programs, computer-aided design, CNC milling equipment, and both polymer & metal 3D printing equipment Market studies indicate that the restoration market is continuing to grow and is broadening to include the newer 'classic' vehicles of the '80s and '90s. The industry consists of both professional restoration shops and many talented hobbyists. The anticipated demand is incorporated in the forecasts below. Sales Forecast: The estimate of sales revenues for this project is $1,250,000 in year 1. Sales growth of 50% is forecast for year 2,…
You are considering two possible companies for investment purposes. The following data is available for each company. Additional Information: Company A: Bad debt estimation percentage using the income statement method is 6%, and the balance sheet method is 10%. The $230,000 in Other Expenses includes all company expenses except Bad Debt Expense. Company B: Bad debt estimation percentage using the income statement method is 6.5%, and the balance sheet method is 8%. The $140,000 in Other Expenses includes all company expenses except Bad Debt Expense. A. Compute the number of days sales in receivables ratio for each company for 2019 and interpret the results (round answers to nearest whole number). B. If Company A changed from the income statement method to the balance sheet method for recognizing bad debt estimation, how would that change net income in 2019? Explain (show calculations). C. If Company B changed from the balance sheet method to the income statement method for recognizing bad debt estimation, how would that change net income in 2019? Explain (show calculations). D. What benefits do each company gain by changing their method of bad debt estimation? E. Which company would you invest in and why? Provide supporting details.
Aaron Athletics is trying to determine its optimal capital structure. The company’s capital structure consists of debt and common equity. In order to estimate the cost of capital at various debt levels the company has constructed the following table: Percent financed with debt (wD) Percent financed with equity (ws) Before tax cost of debt 0.10 0.90 7.0% 0.20 0.80 7.2% 0.30 0.70 8.0% 0.40 0.60 8.8% 0.50 0.50 9.6% The company uses the CAPM to estimate its cost of equity, rS . The risk-free rate is 4% and the market risk premium is 5%. Aaron estimates that if it had no debt its beta would be 1.0. (It’s unlevered beta equals 1.0). The company’s tax rate is 40%. On the basis of this information, what is the company’s optimal capital structure, and what is the WACC at that capital structure? (Show your calculations at each debt level).
Use attached image to answer the following Required:a. Calculate return on common equity for Year 9 using year-end amounts and assuming no preferred dividends. b. Disaggregate Merck’s ROCE into operating (RNOA) and nonoperating components. Comment on Merck’s use of leverage. (Assume all assets and current liabilities are operating and a 35% tax rate.)
DIRECTIONS. Analyze the situation and answer the question on a separate sheet of раper. One of the VP for Finance of the Financial Manager is to determine the appropriate capital structure of the company. To illustrate, show/draw the figure below: Sample Capital Structure 100% 75% Equity 50% Assets 25% Liabilities 0% Total Assets Total Structure - In the figure above, the total assets are financed by 60% debt and 40% equity. Accordingly, the capital structure is 60% debt and 40% equity. Question: Do you think there is an ideal mix of debt and equity across corporations? Elaborate your answer.
DIRECTIONS. Analyze the situation and answer the question on a separate sheet of раper. One of the VP for Finance of the Financial Manager is to determine the appropriate capital structure of the company. To illustrate, show/draw the figure below: Sample Capital Structure 100% 75% Equity 50% Assets 25% Liabilities 0% Total Assets Total Structure - In the figure above, the total assets are financed by 60% debt and 40% equity. Accordingly, the capital structure is 60% debt and 40% equity. Question: Do you think there is an ideal mix of debt and equity across corporations? Elaborate your answer. Note: • Remember that Assets = Liabilities + Owner's Equity. To be able to acquire assets, our funds must have come somewhere. If it was bought using cash from our pockets, it is financed by equity. On the other hand, if we used money from our borrowings, the asset bought is financed by debt.
Hi, I provided a question (the balance sheet) and answer (excel). You may refer to the pictures that I added. Can you explain to me where we can get 65% from the question? I refer to the expect's answer and it stated that x(1-tax)= 65%. Where is 65% come from? I am so confused and what's the actual formula for Returned On Invested Capital because I refer to Internet and it have so many different formula. Hope you can help me because I try to understand this. Thank you so much for your help :)
Ilumina Corp is trying to determine its optimal capital structure. The company’s capital structure consists of debt and common stock. In order to estimate the cost of debt, the company has produced the following table: Percent financed with debt (wd) Percent financed with equity (wc) Debt-to-equity ratio (D/S) After-tax cost of debt (%) 0.25 0.75 0.25/0.75 = 0.33 6.9% 0.35 0.65 0.35/0.65 = 0.5385 7.1% 0.50 0.50 0.50/0.50 = 1.00 8.0% The company uses the CAPM to estimate its cost of common equity, rs. The risk-free rate is 5% and the market risk premium is 6%. Ilumina estimates that its beta with 10% debt is 1. The company’s tax rate, T, is 40%. On the basis of this information, what is the company’s optimal capital structure, and what is the firm’s cost of capital at this optimal capital structure? (Please show work)
The following is the pertinant information regarding the financial structure for the Hops Along Brew Pub. You have been requested to provide a pre tax analysis of this structure Total Investment Debt Financed 5,000,000 3,000,000 Equity Financed 2,000,000 Equity Investors share of Net Profit 50.0% Debt Interest Rate 7.5% Annual Debt Service 2$ 290,000 Forecast Cash Flow before debt service 2$ 1,050,000 Required: Calculate the following USING EXCEL FORMULAS in the cells indicated below Weight of Debt Weight of Equity Cost of Debt Cost of Equity Weighted cost of Debt Weighted cost of Equity Weighted Average Cost of Capital

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