Ivanhoe Network Associates has a current ratio of 1.60, where the current ratio is defined as follows:current ratio = current assets/current liabilities. The firm's current assets are equal to $1,236,000, itsaccounts payable are $422,000, and its notes payable are $350,000. Its inventory is currently at $724,000. The company plans to raise funds in the shot - term debt market and invest the entire amount inadditional inventory. How much can notes payable increase without the current ratio falling below 1.50?

To find out how much Ivanhoe Network Associates can increase their notes payable without dropping…

Answered: Ivanhoe Network Associates has a…

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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Shadow, Inc., is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm’s debt-equity ratio is expected to rise from 30 percent to 50 percent. The firm currently has $4.5 million worth of debt outstanding. The cost of this debt is 8 percent per year. Shadow expects to have an EBIT of $1.8 million per year in perpetuity. Shadow pays no taxes. (1) What is the market value of Shadow, Inc. before and after the repurchase announcement? (2) What is the expected return on the firm’s equity before the announcement of the stock repurchase plan?
The Alpha Beta Company is attempting to establish a current assets policy. Fixed assets are $700,000, and the firm plans to maintain a 40% debt-to-assets ratio. Alpha Beta has no operating current liabilities. The interest rate is 12% on all debt. Three alternative current asset policies are under consideration: 30%, 40%, and 70% of projected sales. The company expects to earn 18% before interest and taxes on sales of $5 million. Alpha Beta’s effective federal-plus-state tax rate is 30%. What is the expected return on equity under each asset policy?
Andyco, Inc., has the following balance sheet and an equity market-to-book ratio of 1.8. Assuming the market value of debt equals its book value, what weights should it use for its WACC calculation? Assets $1,090 Liabilities & Equity Debt $460 Equity $630 The debt weight for the WACC calculation is __ % ? (Round to two decimal places.)
The finance director of Netra co wishes to estimate what impact the introduction of debt finance is likely to have on the company’s overall cost of capital. The company is currently financed only by equity. Ordinary Shares ( 25 cents par value ) 500,000 Reserves 1,100,000 Total Equity 1,600,000 The company’s current share price is 420 cents, and up to $4 million of fixed rate five year debt could be raised at an interest rate of 10% per year. The corporate tax rate is 33%.The current earnings before interest and tax are $2.5 million. These earnings are not expected to change significantly for the foreseeable future. The company is considering raising either: a) $2 million in debt finance; or b) $4 million in debt finance In either case the debt finance will be used to repurchase ordinary shares. Required: i) Using Modigliani and Miller’s model in a world with corporate tax, estimate…
The Lopez-Portillo Company has $10.6 million in assets, 80 percent financed by debt and 20 percent financed by common stock. The interest rate on the debt is 9 percent and the par value of the stock is $10 per share. President Lopez-Portillo is considering two financing plans for an expansion to $18 million in assets. Under Plan A, the debt-to-total-assets ratio will be maintained, but new debt will cost a whopping 12 percent! Under Plan B, only new common stock at $10 per share will be issued. The tax rate is 40 percent. If EBIT is 9 percent on total assets, compute earnings per share (EPS) before the expansion and under the two alternatives. Note: Round your answers to 2 decimal places. What is the degree of financial leverage under each of the three plans? Note: Round your answers to 2 decimal places. If stock could be sold at $20 per share due to increased expectations for the firm's sales and earnings, compute earnings per share for each alternative. Note: Round your answers to 2…
Robert Downey is the new finance manager in Avengers Corporation. The companies were considering expanding their business internationally. Currently the 9-month treasury bills are at 5.2 percent and the company risk premium is at 10 percent. The domestic beta is estimated at 1.2 while the international beta at 1.45. The company's capital structure comprises of 40 percent debts and the balance is equity. He also has gathered the other financial details as following: Assumptions Domestic International (%) (%) 8 12.5 Cost of debt, before tax Corporate income tax Return on market portfolio 20 30 15.0 18 Based on the information given, compute the Weighted Average Cost of Capital (WACC) for both domestic and international company.
Chunky Cheese Pizza has $61.9 million in bonds payable. The bond indenture states that the debt to equity ratio cannot exceed 3.22. Chunky’s total assets are $201.9 million, and its liabilities other than the bonds payable are $91.9 million. The company is considering some additional financing through leasing. 1. Calculate total stockholders’ equity using the balance sheet equation. (Enter your answers in millions. (i.e., $5,500,000 should be entered as 5.5).) Stockholders’ Equity =
SodaFizz has debt outstanding that has a market value of $3 million. The company’s stock has a book value of $2 million and a market value of $6 million. What are the weights in SodaFizz’s capital structure?
Softek Corporation forms a separate legal entity, Startek, to develop new technology. The entity is funded by $2,000,000 in outside equity and $26,000,000 in debt. Softek guarantees Startek's debt. The entity is expected to generate the following cash flows at the end of two years: Cash Flow Probability $14,520,000 0.50 42,350,000 0.20 60,500,000 0.30 A discount rate of 10 percent is appropriate. Required Assume qualitative analysis of Startek's VIE status is inconclusive. Quantitatively analyze whether Startek is a variable interest entity. Instructions: Use negative signs with your answers, when appropriate. • Enter $ answers in millions ($11,000,000 equals $11 million). • Enter Probability answers using decimals. Expected Present Cash Flow Value Probability Expected Investment Residual Expected Fair Value Returns S PV Gains $ $ Expected Losses
Muffin's Masonry Incorporated's balance sheet lists net fixed assets as $31 million. The fixed assets could currently be sold for $53 million. Muffin's current balance sheet shows current liabilities of $14.0 million and net working capital of $13.0 million. If all the current accounts were liquidated today, the company would receive $8.10 million cash after paying the $14.0 million in current liabilities What is the book value of Muffin's Masonry's assets today and the market value of these assets? Note: Enter your answers in millions of dollars rounded to 2 decimal places. (i.e., Enter 5,500,000 as 5.50.) Current assets Fixed assets Total BOOK VALUE MARKET VALUE (in millions of dollars) $ 0.00 $ 0.00
If I could please get help with Part D, would be greatly appreciated. Thanks so much!
Reynolds Construction's current value of operations is $750 million based on the free cash flow valuation model. Its balance sheet shows $50 million of short-term investments that are unrelated to operations, and $300 million of total debt. What is the best estimate for the firm's value of equity, in millions?.

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