It is December 31. Last year, Galaxy Corporation had sales of $80,000,000, and it forecasts that next year's sales will be $86,400,000. Its fixed costshave been-and are expected to continue to be-$44,000,000, and its variable cost ratio is 10.00 %. Galaxy's capital structure consists of a $15 millionbank loan, on which it pays an interest rate of 12%, and 5,000,000 shares of outstanding common equity. The company's profits are taxed at amarginal rate of 35%.The following are the two principal equations that can be used to calculate a firm's DFL value:DFL (at EBIT = $X) =Given this information, complete the following sentences:Percentage Change in EPSPercentage Change in EBITConsider the following statement about DFL, and indicate whether or not it is correct.0 0DFL (at EBITSX) =•The company's percentage change in EBIT is. The percentage change in Galaxy's earnings per share (EPS) is• The degree of financial leverage (DFL) at $86,400,000 is. (Hint: Use the changes in EPS and EBIT that you computed to determine DFL.)FalseTrueEDITPreferred(1-Tax ReAll other factors remaining constant, the larger the proportion of common equity used by the firm in its capital structure, the smaller thefirm's DFL..ERIT-Interest-

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It is December 31. Last year, Galaxy Corporation had sales of $80,000,000, and it forecasts that next year's sales will be $86,400,000. Its fixed costs. have been-and are expected to continue to be-$44,000,000, and its variable cost ratio is 10.00 %. Galaxy's capital structure consists of a $15 million. bank loan, on which it pays an interest rate of 12%, and 5,000,000 shares of outstanding common equity. The company's profits are taxed at a marginal rate of 35%. The following are the two principal equations that can be used to calculate a firm's DFL value: DFL (at EBIT SX) = Percentage Change in EPS Percentage Change in ERTY Given this information, complete the following sentences: The company's percentage change EB is The percentage change in Galaxy's earnings per share (EPS) is The degree of financial leverage (DFL) at $86,400,000 is DFL (at EBITSX)= EDIT EBIT-Interest- Pabord d (-fo . (Hint: Use the changes in EPS and EBIT that you computed to determine DFL.)

It is December 31. Last year, Galaxy Corporation had sales of $80,000,000, and it forecasts that next year's sales will be $86,400,000. Its fixed costs. have been-and are expected to continue to be-$44,000,000, and its variable cost ratio is 10.00 %. Galaxy's capital structure consists of a $15 million. bank loan, on which it pays an interest rate of 12%, and 5,000,000 shares of outstanding common equity. The company's profits are taxed at a marginal rate of 35%. The following are the two principal equations that can be used to calculate a firm's DFL value: DFL (at EBIT SX) = Percentage Change in EPS Percentage Change in ERTY Given this information, complete the following sentences: The company's percentage change EB is The percentage change in Galaxy's earnings per share (EPS) is The degree of financial leverage (DFL) at $86,400,000 is DFL (at EBITSX)= EDIT EBIT-Interest- Pabord d (-fo . (Hint: Use the changes in EPS and EBIT that you computed to determine DFL.)

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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Wontaby Ltd. is extending its credit terms from 45 to 60 days. Sales are expected to increase from $4.75 million to $5.85 million as a result. Wontaby finances short - term assets at the bank at a cost of 12 percent annually. Calculate the additional annual financing cost of this change in credit terms. (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to the nearest whole dollar. Enter answer in whole dollar not in million.) Annual financing costN
ok Gladys Bank and Trust has $440 million in consumer loans with an average interest rate of 8.05 percent. The bank also has $320 million in home equity loans with an average interest rate of 5 percent. Finally, the company owns $140 million in government securities with an average rate of 3 percent. Managers at Gladys Bank and Trust estimate that next year its consumer loan portfolio will fall to $400 million and the interest rate will increase to 9.55 percent. They also estimate that its home equity loans will increase to $360 million with an average interest rate of 7 percent, and its government securities portfolio will increase to $155 million with an average rate of 14.50 percent. Required: Estimate the revenues for the coming year for Gladys Bank and Trust. Note: Enter your answer in thousands of dollars. Interest revenue CARRER
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Annual credit sales of Nadak Co. total $680 million. The firm gives a 2% cash discount for payment within 10 days of the invoice date: 90% of Nadak's accounts receivable are paid within the discount period. Required: a. What is the total amount of cash discounts allowed in a year? (Enter your answer in millions rounded to 2 decimal places.) Total amount million b. Calculate the approximate annual rate of return on Investment that Nadak Co's cash discount terms represent to customers who take the discount. (Assume a credit period of 30 days and 360-days year). (Round intermediate calculations to nearest whole percentage.) ROI
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ABC Co needs to purchase equipment for $2 million. It is estimated that the after- tax cash inflows from the project will be $210,000 annually in perpetuity. ABC Co has a market value debt-to-assets ratio of 60%. The firm's cost of equity is 13%, its pre-tax cost of debt is 8%, and the flotation costs of debt and equity are 2% and 8%, respectively. The tax rate is 34%. Assume the project is of similar risk to the firm's existing operations. What is the dollar flotation cost for the proposed financing? $83,333 $88,000 $92,050 $79,840 $80,000
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CCC currently has sales of $28,000,000 and projects sales of $39,200,000 for next year. The firm's current assets equal $9,000,000 while its fixed assets are $8,000,000. The best estimate is that current assets will rise directly with sales while fixed assets will rise by $500,000. The firm presently has $3,600,000 in accounts payable, $1,800,000 in long-term debt, and $11,600,000 in common equity. All current liabilities are expected to change directly with sales. CCC plans to pay $1,000,000 in dividends next year and has a 5.0% net profit margin. Assuming the increase in fixed assets will occur, what is the most sales could equal next year without using discretionary sources of funds? (Round your answer to the nearest dollar.) $30,330,300 $27,300,000 $33,619,950 $24,103,170 $25,721,514
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The company buys an asset that costs $11,200 and returns net cash flow of $160 per month for 3 years, followed by $270 per month for 3 additional years. The company financing rate is 10.9% compounded monthly. Find the asset's annualized internal rate of return and net present value. O The IRR and NPV equal 16.69% and $1,860.86 O The IRR and NPV equal 15.69% and $1,960.86 O The IRR and NPV equal 17.69% and $2,060.86 O The IRR and NPV equal 19.69% and $2,160.86

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