Goldilochs Inc. reported sales of $8 million and net income of $1.5 million. The firmhas $10.5 million in total assets and $1 million in current liabilities. The firm currentlypays out 75 percent of its net income to shareholders. Assume that all assets andcurrent liabilities are expected to grow with sales. If Goldilochs does not want to relyon any external sources of funds, what is the most sales can grow (in chars)?$187,900$299,900$328,800$364,100

The sustainable growth rate is the maximum growth rate that a company can sustain without having to…

Answered: Goldilochs Inc. reported sales of $8…

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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Wham Corp. is financed entirely by equity at the cost of 12%. The firm is expected to generate a level, perpetual stream of earnings of $1,000 per year. It operates in a perfect market except for taxation at the rate of 40%. (a) Compute the net cash flow per year and the value of the unlevered firm. (b) Now assume the firm borrows $3,000 at a debt cost of 8%. (c) Compute the value of the levered firm and account for the difference in your answer for the unlevered firm.
Milton Industries expects free cash flows of $14 million each year. Milton's corporate tax rate is 21%, and its unlevered cost of capital is 14%. Milton also has outstanding debt of $25.57 million, and it expects to maintain this level of debt permanently. a. What is the value of Milton Industries without leverage? b. What is the value of Milton Industries with leverage? a. What is the value of Milton Industries without leverage? The value of Milton Industries without leverage is $ million. (Round to two decimal places.) b. What is the value of Milton Industries with leverage? The value of Milton Industries with leverage is $ million. (Round to two decimal places.)
Suppose the profitable company, Hermes, Inc., previously calculated its external financing needs (EFN) to be $18,200,000. What will happen to the EFN if management now decides to decrease the dividend payout ratio from 35.00% to 25.00%? (1) It will increase to some value greater than $18,200,000. (2) It will fall to some value lower than $18,200,000. (3) It will remain at $18,200,000. (4) The answer depends on Hermes, Inc.’s growth rate in sales. (5) The answer depends on Hermes, Inc.’s profit margin.
(Related to Checkpoint 4.1) (Liquidity analysis) Airspot Motors, Inc. has $2,517,200 in current assets and $868,000 in current liabilities. The company's managers want to increase the firm's inventory, which will be financed using short-term debt. How much can the firm increase its inventory without its current ratio falling below 2.1 (assuming all other current assets and current liabilities remain constant)? Airspot Motors, Inc. could add up to $ in inventories. (Round to the nearest dollar.)
(Financing decisions) Brussels Electronics, Inc, has total assets of $64 million and total debt of $45 million. The company also has operating profits of $23 millions with interest expenses of $7 million. a. What is Brussels Electronic's debt ratio? b. What is Brussels Electronic's time interest earned? c. Based on the information above, would you recommend to Brussels Electron-ics's management that the firm is in a strong enough position to assume more debt and increase interest expense to $9 million?
The Hasting Sugar Corporation has the following pattern of net income each year, and associated capital expenditure projects. The firm can earn a higher return on the projects than the stockholders could earn if the funds were paid out in the form of dividends. Year 1: net income $13 million, Profitable Capital Expenditure $7 million Year 2 : net income 20 million profitable capital expenditure 12 million Year 3: net income 18 million profitable capital expenditure 6 million Year 4: net income 14 million profitable capital expenditure 8 million Year 5: net income 19 million profitable capital expenditure 9 million The Hastings Corporation has 3 million shares outstanding. If the firm simply uses a payout ratio of 20% net income, how much in total cash dividends will be paid? if the firm pays a 20% stock dividend in years 2 through 5, and also pays a cash dividend of $3.40 per share for each of the five years, how much in total dividends will be paid? Assume the payout ratio in each…
Copmany A. has $2,491,100 in current assets and $859,000 in current liabilities. The company's managers want to increase the firm's inventory, which will be financed using short-term debt. How much can the firm increase its inventory without its current ratio falling below 2.2 (assuming all other current assets and current liabilities remain constant)?
Reynolds Construction's current value of operations is $750 million based on the free cash flow valuation model. Its balance sheet shows $50 million of short-term investments that are unrelated to operations, and $300 million of total debt. What is the best estimate for the firm's value of equity, in millions?.
Target Corporation (TGT) has $2.14 million in assets that are currently financed with 100% equity. TGT’s EBIT is $385,000, and its tax rate is 25%. If TGT changes its capital structure to include 50% debt, its return on equity will increase. Assume the interest rate on debt is free. (justify your answer with numerical calculation) True False
Wanbay Corporation is interested in estimating its additional financing needed to support a growth in sales next year. Last year, revenues were RM1million; net profit margin was 6 percent; investment in assets was RM750,000; payables and accruals were RM100,000; stockholders’ equity at the end of the year was RM450,000. The venture did not pay out any dividends and does not expect to pay dividends for the future. Elaborate the concept of sustainable sales growth rates in relation to the additional fund needed (AFN). Calculate the additional fund needed (AFN) next year to support a 30 percent increase in sales. If the expected sales growth were only 15 percent, compute the change in the additional fund needed (AFN).
Widgets Inc has an expected EBIT of $64,000 in perpetuity and a tax rate of 35 percent. The firm has$95,000 in outstanding debt at an interest rate of 8.5 percent, and its unlevered cost of capital is 15percent. What is the value of the firm according to M&M Proposition I with taxes? Should the companychange its debt–equity ratio if the goal is to maximize the value of the firm? Explain.

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