1) An investor is considering starting a new business. The company would require$475,000 of assets, and it would be financed entirely with common stock. Theinvestor will go forward only if she thinks the firm can provide a 13.5% return onthe invested capital, which means that the firm must have a ROE of 13.5%. Howmuch net income must be expected to warrant starting the business?Netincome =2) Pace Corp.'s assets are $625,000, and its total debt outstanding is $185,000. Thenew CFO wants to employ a debt ratio of 55%. How much debt must the companyadd or subtract to achieve the target debt ratio?29,6Debt Ratio total debttotal Asset3) Orono Corp.'s sales last year were $435,000, its operating costs were $362,500,and its interest charges were $12,500. What was the firm's times interest earned(TIE) ratio?TIF = earning before tax or Int29I=362500125004) Nikko Corp.'s total common equity at the end of last year was $305,000 and its netincome after taxes was $60,000. What was its ROE?60 000ROE NetPatTE196730500018500062500022750315000-5) Branch Corp.'s total assets at the end of last year were $315,000 and its neincome after taxes was $22,750. What was its return on total assets?ROA - NetProfitTA= 0,672

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Answered: is considering starting a new business.…

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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Your sister is thinking about starting a new business. The company would require $300,000 of assets, and it would be financed entirely with common stock. She will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have an ROE of 13.5%. How much net income must be expected to warrant starting the business? a. $44,145 b. $38,475 c. $33,210 d. $40,500 e. $41,310
Sally is thinking about starting a new business. The company would require $700,000 of assets, financed with 40% debt and 60% equity. She will go forward only if she thinks the firm can provide an ROE of at least 15.9%. Operating at a profit margin of 12%, what is the minimum amount of sales that must be expected to support starting the business? Your answer should be between 472000 and 595000, rounded to even dollars (although decimal) places are okay), with no special characters.
As the owner of a small startup, you are faced with a fewmajor financial decisions concerning the expansion orpotential sale of your business. Based on the followingdetails, you must calculate the Present Value, Future Value,Loan Amortization and NPV/Firm Value.Present Value:You are required to have $250,000 seven years from nowfor new manufacturing equipment. Not sure how much youwill need to save as a lump-sum today, you calculate thepresent value (for the beginning of the period) with thefollowing additional details. Interest Rate of 6% with nofuture deposits.Future Value:To take advantage of the rising interest rate environmentthrough the actions of the Federal Reserve, you decide toinvest in U.S. Treasury Bills maturing in one year. Curious toknow what your investment will be worth one year fromtoday, you calculate the future value (for the end of theperiod) based on the following details. Number of period isone, interest rate is 5.25% (compounded monthly), no futuredeposits,…
GBATT has a capital need of $100 million to fund its operations. GBATT has an equity investor that has made an investment in the common stock of GBATT for 60% of this amount but there is the anticipation is that they will earn a 15% return on this investment through capital returns and dividends. This level of anticipated return takes into account the anticipated risk in the investment. With this amount of capital support, GBATT was able to find a lender who will provide the balance of the capital needed at an interest rate of 10% with such debt to be paid out over 10 years. Such lender will require GBATT to fully collateralize its buildings in support of its bond payments. What is the cost of capital in this example?
The Hartley Hotel Corporation is planning a major expansion. Hartley is financed 100 percent with equity and intends to maintain this capital structure after the expansion. Hartley’s beta is 1. The expected market return is 18 percent, and the risk-free rate is 9 percent. If the expansion is expected to produce an internal rate of return of 17 percent, should Hartley make the investment? Round your answer to one decimal places. Based on the cost of capital of %, Hartley invest.
Assume that you are thinking about starting your own small business. You have made the following estimates regarding this opportunity: • You can rent a location for your business at a cost of $36,000 per year. The equipment costs incurred to start the business would total $250,000. The equipment would have a 5-year useful life and a salvage value of $25,000 Your company's estimated sales per year would equal $350,000 and its variable cost of goods sold would be 30% of sales. • Other operating costs would include $58,000 per year in salaries, $4,000 per year for insurance, $25,000 per year for utilities, and a 3% sales commission The simple rate of return for this investment opportunity is closest to: Multiple Choice 22.0% 19.0% 26.6% 15.7%
Speckle Delivery Systems can buy a piece of equipment that is anticipated to provide an 8% return and can be financed at 5% with debt. Later in the year, the company turns down an opportunity to buy a new machine that would yield a 15% return but would cost 17% to finance through common equity. Assume debt and common equity each represent 50% of the company’s capital structure. Compute the weighted average cost of capital (WACC). Which product(s) should be accepted in your opinion? Why?
You are looking to invest into Mona's Mayhem - a punk rock entertainment empire. Mona's Mayhem is expected to earn $8.98 per share next year and earnings are expected to grow by 1.7% forever. Mona's Mayhem reinvests 70% of its earnings each year. You would like a rate of return on your investment of 11.3% per year. How much are you willing to pay per share for Mona's Mayhem? (please round your answer to the nearest penny)
hi, this is my finance question. i need answer asap.
You are an entrepreneur starting a biotechnology firm. If your research is successful, the technology can be sold for $28 million. If your research is unsuccessful, it will be worth nothing. To fund your research, you need to raise $2.6 million. Investors are willing to provide you with $2.6 million in initial capital in exchange for 30% of the unlevered equity in the firm. a. What is the total market value of the firm without leverage? b. Suppose you borrow $0.3 million. According to MM, what fraction of the firm's equity will you need to sell to raise the additional you need? $2.3 million c. What is the value of your share of the firm's equity in cases a and b?

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