Gardial GreenLights, a manufacturer of energy-efficient lighting solutions, has had such success with its new products that it is planning to substantially expand its manufacturing capacity with a $15 million investment in new machinery. Gardial plans to maintain its current 25% debt-to-total-assets ratio for its capital structure and to maintain its dividend policy in which at the end of each year it distributes 35% of the year's net income. This year's net income was $8 million. How much external equity must Gardial seek now to expand as planned? Enter your answer in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answer to two decimal places. tA million

Gardial GreenLights, a manufacturer of energy-efficient lighting solutions, has had such success with its new products that it is planning to substantially expand its manufacturing capacity with a $15 million investment in new machinery. Gardial plans to maintain its current 25% debt-to-total-assets ratio for its capital structure and to maintain its dividend policy in which at the end of each year it distributes 35% of the year's net income. This year's net income was $8 million. How much external equity must Gardial seek now to expand as planned? Enter your answer in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answer to two decimal places. tA million

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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The Lopez-Portillo Company has $10.6 million in assets, 80 percent financed by debt and 20 percent financed by common stock. The interest rate on the debt is 9 percent and the par value of the stock is $10 per share. President Lopez-Portillo is considering two financing plans for an expansion to $18 million in assets. Under Plan A, the debt-to-total-assets ratio will be maintained, but new debt will cost a whopping 12 percent! Under Plan B, only new common stock at $10 per share will be issued. The tax rate is 40 percent. If EBIT is 9 percent on total assets, compute earnings per share (EPS) before the expansion and under the two alternatives. Note: Round your answers to 2 decimal places. What is the degree of financial leverage under each of the three plans? Note: Round your answers to 2 decimal places. If stock could be sold at $20 per share due to increased expectations for the firm's sales and earnings, compute earnings per share for each alternative. Note: Round your answers to 2…
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Acclaim Entertainment Ltd, which has been trading profitably for many years, is planning to expand the business to meet the increasing demand for its services. The issue price of all shares is $1.25. It plans to invest $4 000 000 to finance this expansion, and as a result achieve an increase in profit before interest on debt and income tax of $800 000. A summary of financial results for the financial year ended 30 June 2022 is presented below: Income Expenses (excluding interest and income tax) Interest expense Profit before income tax Income tax (30%) Profit Earnings per share $ 6 500 000 (4 923 000) (77 000) 1 500 000 450 000 $ 1 050 000 0.25 Management is considering whether to finance the expansion by selling 3 200 000 shares at $1.25 per share or by issuing 8% 10 year debentures at a nominal value of $100 each. Required: (a) Assuming that the company achieves the expected increase in profit from the expansion, what will be the earnings per share for each of the alternative methods…
External Equity Financing Gardial GreenLights, a manufacturer of energy-efficient lighting solutions, has had such success with its new products that it is planning to substantially expand its manufacturing capacity with a $20 million investment in new machinery. Gardial plans to maintain its current 60% debt-to-total-assets ratio for its capital structure and to maintain its dividend policy in which at the end of each year it distributes 40% of the year's net income. This year's net income was $8 million. How much external equity must Gardial seek now to expand as planned? Enter your answer in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answer to two decimal places. $ million
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Merton Analytics is considering changes in its working capital policies to improve its cash ﬂow cycle. Merton’s sales last year were $4,250,000 (all on credit), and its net proﬁt margin was 7%. Its inventory turnover was 7.5 times during the year, and its DSO was 41 days. Its annual cost of goods sold was $2,200,000. The ﬁrm had ﬁxed assets totaling $585,000. Merton’s payables deferral period is 42 days. Calculate Merton’s cash conversion cycle. Assuming Merton holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Suppose Merton’s managers believe the annual inventory turnover can be raised to 9.5 times without affecting sales. What would Merton’s cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9.5 for the year?
The Phoenix (P) Corp. is operating in an essential business that its local council is sponsoring. To induce P Corp to remain in this essential business, the council has agreed to pay whatever amount is necessary to yield P Corp a 14 % book return on equity. P Corp is expected to pay a $ 4 dividend next year (i.e., in year 1). It has been reinvesting 45 % of earnings. (Round answers to two decimal places). If it continues the growth trend. g is equal to 6.3% and the long run rate of return is 10.3 if it was bought at 100 dollars. What is the EPS in year 1. and what part of the $100 price is attributable to the present value of growth opportunities (PVGO) (in $) ?
Pearl Corp. is expected to have an EBIT of $2,000,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $85,000, and $125,000, respectively. All are expected to grow at 16 percent per year for four years. The company currently has $10,500,000 in debt and 850,000 shares outstanding. At Year 5, you believe that the company's sales will be $14,850,000 and the appropriate price-sales ratio is 2.2. The company’s WACC is 8.5 percent and the tax rate is 22 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.)

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