CHALLENGE Walker's Gunnery, a small arms manufacturer, has current sales of $10 million and operating income (EBIT) of $450,000. The degree of operating leverage for Walker is 2.5. Next year's sales are expected to increase by 5 percent. Walker has found that, over time, the standard deviation of operating income is $300,000 and operating income is approximately normally distributed about its expected value in any year. Walker's current financial structure contains both debt and preferred stock. Interest payments total $200,000, and preferred stock dividends total $60,000. Walker's marginal tax rate is 40 percent. What is the probability that Walker's Gunnery will report negative earnings per share during the coming year?

CHALLENGE Walker's Gunnery, a small arms manufacturer, has current sales of $10 million and operating income (EBIT) of $450,000. The degree of operating leverage for Walker is 2.5. Next year's sales are expected to increase by 5 percent. Walker has found that, over time, the standard deviation of operating income is $300,000 and operating income is approximately normally distributed about its expected value in any year. Walker's current financial structure contains both debt and preferred stock. Interest payments total $200,000, and preferred stock dividends total $60,000. Walker's marginal tax rate is 40 percent. What is the probability that Walker's Gunnery will report negative earnings per share during the coming year?

Name: 15. CHALLENGE Walker's Gunnery, a small arms manufacturer, has curren
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Description: 15. CHALLENGE Walker's Gunnery, a small arms manufacturer, has current sales of$10 million and operating income (EBIT) of $450,000. The degree of operatingleverage for Walker is 2.5. Next year's sales are expected to increase by 5 percent.Walker has

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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7
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…
Bulldogs Inc. currently has earnings before interest and taxes of P3,000,000, a degree of combined leverage of 8, and a degree of financial leverage of 2. What will be Bulldogs Inc.'s expected earnings before interest and taxes in one year if sales decrease by 20% next year?
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CCC currently has sales of $28,000,000 and projects sales of $39,200,000 for next year. The firm's current assets equal $9,000,000 while its fixed assets are $8,000,000. The best estimate is that current assets will rise directly with sales while fixed assets will rise by $500,000. The firm presently has $3,600,000 in accounts payable, $1,800,000 in long-term debt, and $11,600,000 in common equity. All current liabilities are expected to change directly with sales. CCC plans to pay $1,000,000 in dividends next year and has a 5.0% net profit margin. Assuming the increase in fixed assets will occur, what is the most sales could equal next year without using discretionary sources of funds? (Round your answer to the nearest dollar.) $30,330,300 $27,300,000 $33,619,950 $24,103,170 $25,721,514
SS
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You have looked at the current financial statements for J&R Homes, Company. The company has an EBIT of $3,130,000 this year. Depreciation, the increase in net working capital, and capital spending were $239,000, $104,000, and $485,000, respectively. You expect that over the next five years, EBIT will grow at 20 percent per year, depreciation and capital spending will grow at 25 percent per year, and NWC will grow at 15 percent per year. The company currently has $17.9 million in debt and 515,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.5 percent indefinitely. The company’s WACC is 8.7 percent and the tax rate is 25 percent. What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Share price

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