HiLo, Inc., doesn't face any taxes and has $255.4 million in assets, currently financed entirely withequity. Equity is worth $16 per share, and book value of equity is equal to market value of equity. Also,let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs thisyear, with the possible values of EBIT and their associated probabilities as shown below:StateProbability of stateExpected EBIT in statePessimistic0.45$ 1,660,100$Optimistic0.55$ 16,856,400The firm is considering switching to a 20-percent-debt capital structure, and has determined that it wouldhave to pay a 12 percent yield on perpetual debt in either event. What will be the level of expected EPS ifthe firm switches to the proposed capital structure? (Do not round intermediate calculations and roundyour final answer to 2 decimal places.)Expected EPS

HiLo Inc. has $255.4m = $255,400,000 in assets, which is currently financed by equity.After it…

Answered: HiLo, Inc., doesn't face any taxes and…

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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Similar questions

Assume an M&M world with taxes. Your company's EBIT is currently $20,000,000, and EBIT is expected to remain constant over time (zero growth). The company pays out all of its earnings each year, so its earnings per share equals its dividends per share. The firm has 6,000,000 shares outstanding. The risk-free rate in the economy is 2.5 percent, and the market risk premium is 5.0 percent. The company's beta is currently 1.50. And, of course, the tax rate is 40%. Currently, the firm as no debt outstanding. The company decided to issue $X million worth of debt, and to use the proceeds to repurchase shares in the open market. When the announcement of the debt issue was made yesterday, the stock price reacted appropriately, increasing by 8%. The firm then issued the debt and repurchased the shares as planned. What is the final beta of the firm's equity? You should use all M&M assumptions for this answer. Answer in X.XX format. For example, a final beta of 1.0356 should be entered as 1.04.
You have the following cash flows for the firm; What is NPV, if discount rate is 10% ? CF0 = -467 (CF0 is always negative. It is your initial investment) CF1 = 625 CF2 = 684 CF3 = 666 CF4 = 753 CF5 = 976
Consider a two-date binomial model. A company has both debt and equity in its capital structure. The value of the company is 100 at Date 0. At Date 1, it is equally like that the value of the company increases by 20% or decreases by 10%. The total promised amount to the debtholders is 100 at Date 1. The riskfree interest rate is 10%. a. What are the possible payoffs to the equityholders at date 1? What kind of financial product has the same payoffs? Please describe the detailed characteristics of the financial product. b. What are the possible payoffs to the bondholders at date 1? Are they riskfree? What kind of financial product/portfolio has the same payoffs? Please describe the detailed characteristics of the financial product/portfolio.
Your firm has a perpetually growing unlevered cash flow equal to 430,000. The growth rate is 2.00%. The firm keeps a constant debt-to-equity ratio equal to 26%. The interest rate on debt is 3.50%. If the unlevered return on equity is 8.25% and the tax rate is 36%, what is the present value of the interest tax shield? Answer is PV(ITS)= 298,631.05 please write the steps
BNB bank estimates that its total revenues will amount to $350 million, and its total expenses (including taxes) will equal $220 million this year. Its liabilities total $3,800 million while its equity capital amounts to $110 million. What is the bank's return on assets? Is this ROA high or low? How could you find out?
Please solve using excel and explain formulas.
An unlevered firm has a value of $850 million. An otherwise identical but levered firm has $80 million in debt at a 3% interest rate, which is its pre-tax cost of debt. Its unlevered cost of equity is 10%. After Year 1, free cash flows and tax savings are expected to grow at a constant rate of 4%. Assuming the corporate tax rate is 25%, use the compressed adjusted present value model to determine the value of the levered firm. (Hint: The interest expense at Year 1 is based on the current level of debt.) Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answer to two decimal places.
You have the following cash flows for the firm; What is NPV, if discount rate is 10% ? CF0 = -467 (CF0 is always negative. It is your initial investment) CF1 = 625 CF2 = 684 CF3 = 666 CF4 = 753 CF5 = 976
Problem 10-1 Zenith Investment Company is considering the purchase of an office property. It has done an extensive market analysis and has estimated that based on current market supply or demand relationships, rents, and its estimate of operating expenses, annual NOI will be as follows: Year NOI 1 $ 1,285,000 2 1,285,000 3 1,285,000 4 1,295,000 5 1,345,000 6 1,395,000 7 1,434,000 8 1,474,170 A market that is currently oversupplied is expected to result in cash flows remaining flat for the next three years at $1,285,000. During years 4, 5, and 6, market rents are expected to be higher. It is further expected that beginning in year 7 and every year thereafter, NOI will tend to reflect a stable, balanced market should grow at 3 percent per year indefinitely. Zenith believes that investors should earn a 12 percent return (r) on an investment of this kind. ?
Wolfrum Technology (WT) has no debt. Its assets will be worth $467 million one year from now if the economy is strong, but only $295 million in one year if the economy is weak. Both events are equally likely. The market value today of its assets is $291 million. a. What is the expected return of WT stock without leverage? b. Suppose the risk-free interest rate is 5%. If WT borrows $139 million today at this rate and uses the proceeds to pay an immediate cash dividend, what will be the market value of its equity just after the dividend is paid, according to MM? c. What is the expected return of WT stock after the dividend is paid in part (b)? a. The unievered expected return of WT stock is (Round to two decimal places)
Q.A company will earn net profits of $100,000 if the economy booms (probability of 80%) and net profits of $60,000 if the economy enters a recession (probability of 20%). The company wants to take out a loan for $74,000 to finance its operations.Treasuries of the same maturity offer an interest rate of 6%. Assume risk neutrality. A)What payoff would the bank receive if it invested $74,000 in Treasuries? B)What payout should the bank be looking for during the boom (in $)? C)What interest rate should the bank quote?
The Neal Company wants to estimate next year's return on equity (ROE) under different financial leverage ratios. Neal's total capital is $18 million, it currently uses only common equity, it has no future plans to use preferred stock in its capital structure, and its federal-plus-state tax rate is 40%. The CFO has estimated next year's EBIT for three possible states of the world: $4.2 million with a 0.2 probability, $2.7 million with a 0.5 probability, and $0.8 million with a 0.3 probability. Calculate Neal's expected ROE, standard deviation, and coefficient of variation for each of the following debt-to-capital ratios. Do not round intermediate calculations. Round your answers to two decimal places at the end of the calculations. Debt/Capital ratio is 0. RÔE = %σ = %CV = Debt/Capital ratio is 10%, interest rate is 9%. RÔE = %σ = %CV = Debt/Capital ratio is 50%, interest rate is 11%. RÔE = %σ = %CV = Debt/Capital ratio is 60%, interest rate is 14%. RÔE = %σ = %CV =

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