As the chief financial officer of Adirondack Designs, you have the following information:• Next year's expected net income after tax but before new financing $42 millionSinking-fund payments due next year on the existing debt $15 million• Interest due next year on the existing debt $10 million• Common stock price, per share $28.00• Common shares outstanding 20 millionCompany tax rate 30%Calculate the firm's times-interest-earned ratio for next year assuming the firm raises $50million of new debt at an interest rate of 4 percent.5.834.21○ 6.38O 1.25

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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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Assume that the current stock price of a company is $40 per share. The company declares a cash dividend of $5 for the next year which is expected to grow by 2% per year forever. If the company is 55% debt financed with a pre-tax cost of debt of 12%, its weighted average cost of capital (WACC) for a 30% tax rate is closest to:
Plato, Inc., expects to have net income of $5,000,000 during the next year. Plato’s target capital structure is 35 percent debt and 65 percent equity. The company’s director of capital budgeting has determined that the optimal capital budget for the coming year is $6,000,000. If Plato follows a residual distribution policy (with all distributions in the form of dividends) to determine the coming year’s dividend, then what is Plato’s payout ratio? 38% 42% 58% 33% 22%
Suppose Fried Fritters Ltd. pays a corporate tax rate of 30% and is financed as follows: • 30% senior secured debt with an annual yield of 4.8% • 10% unsecured junior debt with an annual yield of 9.9% • 50% common shares with an annual return on equity of 7.0% • 10% preferred shares with an annual return on equity of 8.0% The company is considering investing in a one-day training program for its chefs that will cost $10 million today, January 1. The trained chefs would then generate $1 million of extra revenue at the end of each year (December 31) for 16 years and then zero thereafter. Calculate the NPV of the program; type your answer in the box below, rounded to the nearest dollar.
Puckett Products is planning for $3 million in capital expenditures next year. Puckett's target capital structure consists of 60% debt and 40% equity. If net income next year is $2 million and Puckett follows a residual distribution policy with all distributions as dividends, what will be its dividend payout ratio? Round your answer to two decimal places.
The most recent financial statements for Crosby, Incorporated, appear below. Sales for 2022 are projected to grow by 25 percent. Interest expense will remain constant; the tax rate and the dividend payout rate also will remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales. Sales Costs Other expenses CROSBY, INCORPORATED 2021 Income Statement Earnings before interest and taxes Interest expense Taxable income Taxes (24%) Net income Dividends Addition to retained earnings $ 19,940 50,664 $772,000 628,000 33,500 $ 110,500 17,600 $ 92,900 22,296 $ 70,604
Sorenson Systems, Inc. is expected to pay a dividend of $3.30 at year end (D1), the dividend is expected to grow at a constant rate of 5.5% a year, and the common stock currently sells for $37.50 a share. The before-tax cost of debt is 7.5%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity. What is the company's WACC if all the equity is used from retained earnings?Your answer should be between 7.36 and 12.57, rounded to 2 decimal places, with no special characters.
Baghiben
XYZ anticipates earning $1,000,000 and paying $200,000 in dividends this year. XYZ's capital structure is 20% debt and 80% equity and its tax rate is 35%. Compute the equity breakpoint to the nearest dollar. Your Answer:
Tomey Supply Company’s financial statements for the most recent fiscal year are shown below. The company projects that sales will increase by 27 percent next year. Assume that all costs and assets increase directly with sales. The company has a constant 39 percent dividend payout ratio and has no plans to issue new equity. Any financing needed will be raised through the sale of long-term debt. Prepare pro forma financial statements for the coming year based on this information, and calculate the EFN for Tomey. Tomey Supply Company Income Statement and Balance Sheet. Income Statement Balance Sheet Revenues $1,768,121 Assets Costs 1,116,487 Current Assets $280,754 EBT 651,634 Net Fixed Assets 713,655 Taxes (35%) 228,072 Total assets $994,409 Net Income $423,562 Liabilities and Equity: Current Liabilities $167,326 Long-term…
Provided that Shareholders' equity in a firm is $500. The firm owes a total of $400 of which 75 percent is payable this year. In addition credit sales to customers total 5000 of which 80 percent is due this year The firm has net fixed assets of $600. What is the amount of the net working capital?
ABC Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $52.50 a share. The before-tax cost of debt is 7.50% and the tax rate is 40%. The target capital structure consist of debt and 55% common equity. What is the companys WACC if all the equity used is from retained earnings?
A company finances its operations with 57 percent debt and the rest using equity. The annual yield on the company's debt is 6% and the required rate of return on the stock is 14.6%. What is company's WACC? Assume the tax rate is 30%

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