Digby Corp. ended last year with a surplus of cash and a leverage of 2.9. If Digby Corp. had used all of that cash to payoff liabilities what would their leverage have been?Select: 1A. 2.3B. 0.3C. 0.8D. 1.0

To decide the leverage of Digby Corp. After the usage of all its cash to pay off liabilities, we…

Answered: Digby Corp. ended last year with a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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4
If you owned a company, would you prefer the market value of its assets to rise $10million or the market value of its liabilities to fall $10million?
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i Explain how wrong calculation of the cost of capital of a project leads toincorrect choice of a project. ii Explain the superiority of the Security Market Line (SML) approach ascompared to the dividend valuation model. iii A company is faced with the choice of one of two investment opportunities Aand B. The initial cost of each is Rs.200,000 and their estimated cash flows areas follows.Year Cash Flows (Rs.) – A Cash Flows (Rs.)- B1 200,000 40,0002 240,000 60,000Assuming a cost of capital of 7% calculate (year 1: .935; year 2: .873)a. NPVb. The yield rate of each projectc. Say which project you would select
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What is the company's cost of debt? a. 9.21%b. 10.31%c. 11.5%d. 7.73% What is the company's cost of equity using the Capital Asset Pricing Model? a. 9.21%b. 10.31%c. 11.5%d. 7.73%
The free cash flow for Synco, Inc. equals $100,000. The firm made fixed asset investments of $50,000, and operating working capital increased by $50,000. What was the after-tax cash flow from operations? Select one: a. $100,000 b. $200,000 C. $150,000 d. $0
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Capital Structure Analysis The Rivoli Company has no debt outstanding, and its financial position is given by the following data: $ 45 6 ✔ Expected EBIT Growth rate in EBIT, gL Cost of equity, rs Shares outstanding, no Tax rate, T (federal-plus-state) a. What is Rivoli's intrinsic value of operations (i.e., its unlevered value)? Round your answer to the nearest dollar. 4500000✔✔ $ What is its intrinsic stock price? Its earnings per share? Round your answers to the nearest cent. Intrinsic stock price: $ Earnings per share: $ 4.50 b. Rivoli is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 35% debt based on market values, its cost of equity, rs, will increase to 12% to reflect the increased risk. Bonds can be sold at a cost, rd, of 8%. Based on the new capital structure, what is the new weighted average cost of capital? Round your answer to three decimal places. 9.9 % What is the levered value of the firm? What is the…

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Digby Corp. ended last year with a surplus of cash and a leverage of 2.9. If Digby Corp. had used all of that cash to pay off liabilities what would their leverage have been? Select: 1 A. 2.3 B. 0.3 C. 0.8 D. 1.0