Assume that B Corp. net income for next year would be 500 million and its optimal capital budget for next year is 250million. Also assume that the debt ratio is now 80%. What would be the maximum capital spending if B Corp decides toretain all of its earnings?A) $250 mB) $2,500mC) $4,500 mD) $450E) $5.500 mOAOBOCODOE

Capital budgeting is a strategic financial process aimed at evaluating and selecting long-term…

Answered: Assume that B Corp. net income for next…

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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Assuming a firm's weighted average cost of capital is 11%, what is the net present value (NPV) of the following project? Year Net Cash Flow -$450,000 $150,000 $200,000 $350,000 0 1 2 3 $30,257 $130,257 O $103,377 $553,377
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 million
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An A firm has sales of $10 million, variable costs of $4 million, fixed expenses of $1.5 million, interest costs of $2 million, and a 30 percent average tax rate. a) Compute its DOL, DFL, and DCL. b) What will be the expected level of EBIT and net income if next year's sales rise 10 percent? c) What will be the expected level of EBIT and net income if next year's sales fall 20 percent?
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What is the process of consideration of the payback period?
What is the cash cow value and the value of its growth opportunities (NPVGO) if a corporation has current earnings of $5 per share and expects to be able to make an investment of 20% of its earnings next year in a new one-time project with an expected return on invested capital of 24%? The discount rate for the firm is 8%. Cash cow value is $62.50 and NPVGO is $1.85 Cash cow value is $20.83 and NPVGO is $2 Cash cow value is $62.50 and NPVGO is $14 Cash cow value is $25.00 and NPVGO is $3 Cash cow value is $25.00 and NPVGO is $3
The project would be financed by a mix of 60% debt and 40% equity and the company’s tax rate was 25%. He was confident that the firm could raise debt at 11% and equity at 14%. The projects expected 5-year cash flows are set out in Exhibit 3. Exhibit 3 Years Projected Cash Flows 2019 $ (2,000,000.00) 2020 $ 420,000.00 2021 $ 700,000.00 2022 $ 900,000.00 2023 $ 300,000.00 Find the WACC
XYZ Corp has a capital budget of $10M for next year. The company has a target capital structure of 65% Equity / 35% Debt. If net income next year is projected to be $9M and the company follows a residual distribution model and pays all distributions as dividends, what will be its payout ratio?
Spellbound Solutions estimated future capital investment needs aré $ 1200m, and the estimated future net income is $1200m. If the company finances itself with 40 percent debt and 60 percent equity, how much in dividends can the company afford to pay? a. $0m b. $420m c. $480m d. $720m e. $900
The capital structure weights of Kala Ghoda is .55 and the tax rate is 39 percent. The cash flows of Kala Ghoda will be $1.55 million per year for 7 years and the cost of debt is 5.46 percent. What is the NPV if it's equity costs 11.17 percent and the project's cost is $7.5 million?
M& B is considering investing in Project X which requires an initial investment of P15,000. The firm`s cost of capital is 9%. The project is expected to last for six years and provide an annual cash flow of P3,000. What is this projects breakeven cash flow? A. P3,434.00 B. P3,334.00 C. P3,344.00

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