Use the table for the question(s) below.FCF Forecast ($ million)YearSales127012.5%32.40Less: Income Tax (37%)(6.48)Less Increase in NWC (12% of Change in Sales) 3,60Free Cash Flow22.32Growth versus Prior YearEBIT (10% of Sales)0240OA. $4.27OB. $7.47OC. $12.8OD. $5.1222907.4%34.80(6.96)2.4025.44ACCE33106.9%37.20(7.44)2.4027.36Banco Industries expect sales to grow at a rapid rate over the next 3 years, but settle to an industry growth rate of 4% inyear 4. The spreadsheet above shows a simplified pro forma for Banco Industries. Banco industries has a weightedaverage cost of capital of 10%, $30 million in cash, $60 million in debt, and 18 million shares outstanding. If BancoIndustries can reduce its operating expenses so that EBIT becomes 12% of sales, by how much will its stockprice increase?4325.55.0%39.06(7.81)1.8629.388

The value of a company is the sum of all its marketable assets. The Modigliani-Miller proportion…

Answered: Industries can reduce its operating…

Industries can reduce its operating expenses so that EBIT becomes 12% of sales, by how much will its stock price increase?

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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A firm has an asset turnover ratio of 5.0. Its plowback ratio is 50%, and it is all-equity-financed. If the profit margin of the firm is 3%, what is the maximum payout ratio that will allow it to grow at 5% without resorting to external financing? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Maximum payout ratio %
Old Comm Corp. is an old company in an industry which is declining. You are trying to determine what a fair price for the company would be given these facts. You know the firm just paid a dividend of $3.01. You expect the industry to shrink by -13.3% a year and assume this can be used as the firm's growth rate. Your estimated discount rate for the firm is 10.996. Given your assumptions, what should be the price of Old Comm Corp.? Answer with dollars and cents
If A7X Company has an ROA of 14 percent and a payout ratio of 16 percent, what is its internal growth rate?
Net Income (NI) could be thought of as earnings available for dividends to equity shareholders, assuming none is needed to sustain current operations without further growth. So, let us assume NI will be $500 in year 1 and $525 in year two. Then, the company expects to sell this division for $3,000 at the end of year 3. If the discount rate is 14%, what is the present value of this business division?
Suppose the growth rate of a firm's profits is 5%, the interest rate is 6%, and the current profits of the firm are $100 million dollars. What is the value of the firm?
You are considering a new supplier that you estimate would reduce your costs 0.025, increasing overall EBIT margin the same amount, or 250 basis points. Tax burden 0.79 Interest burden 0.8 Operating margin Asset turnover 2.1 Leverage ratio 1.2 Equity 56 Before the changes are made the firm was intrinsically valued at 45.54 After the changes, what would the new value be assuming the new ROE, growth, and EPS1. The firm pays dividends as 0.61 of EPS. The discount rate is 0.15" O 64.88 O 70.24 62.35 O 67.36 0.08 O 73.13
You forecast the company RIO will have a sustainable ROE of 15% in the future, similar to the industry average of 15%. The company has a dividend payout ratio of 50% versus industry average of 50%. The company had less debt and operation leverage compare to industry, as a result , RIO has a beta of 1.8 versus the industry average of 2. Based on these information, should the company RIO have a higher or lower PE ratio than the industry average ? Given a risk free rate of 2% and market risk premium of 8%, what is RIO’s “intrinsic” forward PE ratio based on formula?
Consider an economy with two types of companies, S and I. The profits of companies S always move together, but the profits of companies I move independently of each other. For both firms, there is a 70% probability that the firm's return is 30%, and a 30% probability that the return is -30%. The standard deviation of an individual company's return is closest to the value: Choose one: A.23.0% B.5.25% C.15.0% D.10.0% Only typed answer
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.
Adobe Systems has come out with a new and improved product. As a result, the firm projects an ROE of 22.5%, and it will maintain a plowback ratio of .50. Its projected earnings are $3.75 per share. Investors expect an 18% rate of return on the stock. At what price and P/E ratio would you expect the firm to sell and what is the preset value of growth opportunities?
Do not use Excel or Matrix You have to show your work 6. Sun Co., an electronics product manufacturer, is expecting to pay a dividend of $2 per share this year (end of the year, at t = 1). Based on market research for its products and production costs, Sun expects the dividend to grow at the rate of 15% per year in years two and three. Subsequently, the growth will be closer to the industry average, which is 4%. Sun’s cost of equity is 13%, what must be the a. value of each share three years from now, after the dividend for the third year is paid? b. value of each share now?
(Using degree of operating leverage) Last year Baker-Huggy Inc. had fixed costs of $150,000 and net operating income of $34,000. If sales increase by 18 percent, by how much will the firm's NOI increase? What would happen to the firm's NOI if sales decreased by 21 percent? If sales increase by 18%, the change in the firms NOI will be (a decrease or increase) of _ %

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