Please answer all parts of question, thanks. 3Equity AssessmentRicotta Ltd, a small listed cheese-making company had revenues last year of $7.5 million andtotal costs of $4.5 million. Ricotta has 2.1 million shares of common stock outstanding.Gross revenues and costs are expected to grow at 4 percent per year on this existing business.Ricotta pays tax at 30 cents in the dollar. The dividend payout ratio is 30%.(а)Required:(i) If the appropriate discount rate is 10 percent per annum and all cash flows are receivedat year's end, what is the price per share of Ricotta Ltd's stock?(ii) Ricotta Ltd has decided to start a new project. This project requires an immediateoutlay of $35 million. In one year, another outlay of $30 million will be needed. In thesecond year from today and onward, earnings from the new project will be a steady $20million (before tax) per year, maintained in perpetuity. What effect will undertakingthis new project have on the price per share of Ricotta's stock? Please calculate the newexpected share price.(iii) Briefly define and explain the NPVGO model and use your answers to (i) and (ii) inyour explanation

Excel working on dividend per share in Year 0. Result:

Equity Assessment Ricotta Ltd, a small listed cheese-making company had revenues last year of $7.5 million and total costs of $4.5 million. Ricotta has 2.1 million shares of common stock outstanding. Gross revenues and costs are expected to grow at 4 percent per year on this existing business. Ricotta pays tax at 30 cents in the dollar. The dividend payout ratio is 30%. Required: (i) If the appropriate discount rate is 10 percent per annum and all cash flows are received at year's end, what is the price per share of Ricotta Lid's stock? (ii) Ricotta Ltd has decided to start a new project. This project requires an immediate outlay of $35 million. In one year, another outlay of $30 million will be needed. In the second year from today and onward, earnings from the new project will be a steady $20 million (before tax) per year, maintained in perpetuity. What effect will undertaking this new project have on the price per share of Ricotta's stock? Please calculate the new expected share price. (iii) Briefly define and explain the NPVGO model and use your answers to (i) and (ii) in your explanation

Equity Assessment Ricotta Ltd, a small listed cheese-making company had revenues last year of $7.5 million and total costs of $4.5 million. Ricotta has 2.1 million shares of common stock outstanding. Gross revenues and costs are expected to grow at 4 percent per year on this existing business. Ricotta pays tax at 30 cents in the dollar. The dividend payout ratio is 30%. Required: (i) If the appropriate discount rate is 10 percent per annum and all cash flows are received at year's end, what is the price per share of Ricotta Lid's stock? (ii) Ricotta Ltd has decided to start a new project. This project requires an immediate outlay of $35 million. In one year, another outlay of $30 million will be needed. In the second year from today and onward, earnings from the new project will be a steady $20 million (before tax) per year, maintained in perpetuity. What effect will undertaking this new project have on the price per share of Ricotta's stock? Please calculate the new expected share price. (iii) Briefly define and explain the NPVGO model and use your answers to (i) and (ii) in your explanation

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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Smith Bottling Company (SBC) expects this year's sales to be $624,000. SBC's variable operating costs are 75 percent of sales and its fixed operating costs are $96,000. SBC pays interest on its debt equal to $35,000 per year and its marginal tax rate is 35 percent. SBC has no preferred stock. a. Compute SBC's DOL, DFL, and DTL. Do not round intermediate calculations. Round your answers to two decimal places. DOL: DFL: DTL: b. If sales turn out to be $648,960 rather than $624,000, what will be SBC's EBIT and net income? Do not round intermediate calculations. Round your answers to the nearest dollar. EBIT: $ Net income: $
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