If sales decrease by 6%, net income is expected to decrease by what amount? $2,160 $1,260 $3,420 $7,560
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QUESTION 5
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The magnitude of operating leverage for Blue Ridge Corporation is 3.5 when sales are $200,000 and net income is $36,000. If sales decrease by 6%, net income is expected to decrease by what amount?$2,160$1,260$3,420$7,560
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- QUESTION 28 Top management is trying to determine which would be the best choice of the following investment opportunities: Data of investment choices: 2 Sales $9,000,000 Operating income 300,000 Average operating assets 3,000,000 Required: Compute the Residual Income assuming a minimum required rate of return of 8%. $66,000 $60,000 $50,000 $55,000Question: 5 (Marks 10) XYZ company expects in the coming year: sales of 40,000 units at $10 per unit, variable operating costs of $4 per unit, fixed operating costs of $30,000, interest of $50,000, and preferred stock dividends of $24,000. The Company is in the 40% tax bracket. Compute the following and explain their meaning: - Degree of Operating Leverage (DOL) - Degree of Financial Leverage (DFL) - Degree of Total Leverage (DTL) If XYZ company’s Earnings Per Share (EPS) is currently $7.2, estimate its EPS in case of a 10% increase in EBIT.Chapter 10 Evaluation Calculating Weighted Average Cost of Capital and Economic Value Added (EVA) Ignacio, Inc., had after-tax operating income last year of $1,199,500. Three sources of financing were used by the company: $2 million of mortgage bonds paying 4 percent interest, $4 million of unsecured bonds paying 6 percent interest, and $10 million in common stock, which was considered to be relatively risky (with a risk premium of 8 percent). The rate on long-term treasuries is 3 percent. Ignacio, Inc., pays a marginal tax rate of 30 percent. Required: 1. Calculate the after-tax cost of each method of financing. Enter your answers as decimal values rounded to three places. For example, 4.36% would be entered as ".044". Mortgage bonds 0.028 ✓ Unsecured bonds 0.042 ✔ Common stock 8.64 X % eBook 2. Calculate the weighted average cost of capital for Ignacio, Inc. Round intermediate calculations to four decimal places. Round your final answer to four decimal places before converting to a…
- QUESTION 24 Alpha Company has shown the following financial information: Sales: $4,500,000, Total assets: $1,800,000 Cost of capital: 15% Residual income: $90,000 The company’s return on investment is: A. 15% B. 18% C. 10% D. 12% E. 20%QUESTION 29 Top management is trying to determine which would be the best choice of the following investment opportunities: Data of investment choices: 3 Sales $6,000,000 Operating income 300,000 Average operating assets 3,000,000 Required: Compute the Return on investment 12% 11% 10% 8%QUESTION 42 company s estimating its optimal capital structure. Now the company has a capital structure that consists of 20% debt and 80% equity, based on market values (debt to equity D/S ratio is 0.25). The risk-free rate (RF) is 5% and the market risk premium (M-[RF) is 6%. Currently the company's cost of equity, which is based on the CAPM, is 14% and its tax rate is 20%. Find the firm's current leveraged beta using the CAPM O 1.0 O 1.5 O 1.6 O 1.7 QUESTION 43 Based on the information from Question 42, find the firm's unleveraged beta using the Hamada Equation O 0.95 O 1.0 O 1.25 O 1.35 QUESTION 44 Based on the information from Question 42 and 43, what would be the company's new leveraged beta if it were to change its capital structure to 50% debt and 50% equity (D/S=1.0) using the Hamada Equation? O 1.25 O 1.35 O 1.95 O 2.25 QUESTION 45 Based on the information from Question 42 ~ 44, what would be the company's new cost of equity if it were to change its capital structure to 50%…
- 1. Bonita Industries’s degree of operating leverage is 2.0. Warren Corporation’s degree of operating leverage is 5.8. Warren’s earnings would go up (or down) by ________ as much as Bonita’s with an equal increase (or decrease) in sales. 2.9 times 7.8 times 3.8 times 1.010 20 30 40 50 60 7 10 11 12 13 14 15 160 28 29 300 QUESTION 7 Firm Q earned $345m in free cash flow over the last year ending yesterday. Analysts expect the firm's FCF will continue to grow at 3.5% a year into perpetuity. The firm has $1.7 billion in Debt and $400m in cash. The firm's WACC is estimated at 7.3%. The cost of equity is estimated to be 11.0% and the cost of debt is 3,8%. If the firm has 600 million shares outstanding, what is the estimated price for a single share of stock using the discounted cash flow model? $12.96 O $13.09 $13.49 $12.83 OUESTION 8QUESTION 26 Top management is trying to determine which would be the best choice of the following investment opportunities: Data of investment choices: 1 Sales $10,000,000 Operating income 200,000 Average operating assets 2,000,000 Required: Compute the Residual Income assuming a minimum required rate of return of 8%. $40,000 $0 $50,000 $(40,000)
- QUESTION 30 Management is trying to determine which would be the best choice of the following investment opportunities: Data of investment choices: 3 Sales $6,000,000 Operating income 300,000 Average operating assets 3,000,000 Required: Compute the Residual Income assuming a minimum required rate of return of 8%. $66,000 $75,000 $60,000 $70,00018 8 00:37:07 The most recent financial statements for Alexander Company are shown here: Income Statement Sales $ 55,000 35,200 Costs Taxable income $19,800 Taxes (22%) 4,356 Net income $ 15,444 Assets and costs are proportional to sales. The company maintains a constant 26 percent dividend payout ratio and a constant debt-equity ratio. Multiple Choice What is the maximum increase in sales that can be sustained assuming no new equity is issued? $9,905.67 $5,142.88 $3,144.45 Current assets Fixed assets Total $10,105.67 Balance Sheet $ 86,130 Long-term debt $59,400 47,520 Equity 74,250 $ $ Total 133,650 133,650 $10,005.67Problem 19.20 Tomey Supply Company's financial statements for the most recent fiscal year are shown below. The company projects that sales will increase by 15 percent next year. Assume that all costs and assets increase directly with sales. The company has a constant 26 percent dividend payout ratio and has no plans to issue new equity. Any financing needed will be raised through the sale of long- term debt. Prepare pro forma financial statements for the coming year based on this information, and calculate the EFN for Tomey. (Round intermediate calculation to the nearest whole dollar, e.g. 5,275. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Tomey Supply Company Income Statement and Balance Sheet Income Statement Balance Sheet Revenues $1,768,121 Assets Costs 1,116,487 Current Assets $280,754 EBT 651,634 Net Fixed Assets 713,655 Taxes (35%) 228,072 Total assets $994,409 Net Income $423,562 Liabilities and Equity: Current…