Laroux Products has the following balance sheet. Its temporary current assets are 30 percent of the current assets, andthe remaining are permanent current assets. Cash $ 100,000 Accounts Payable $ 600,000 Inventory $ 200,000 NotesPayable $ 200,000 Accounts Receivable $ 150,000 Long-Term Debt $ 150,000 Net Fixed Assets $ 550,000 CommonEquity $ 50,000 What working capital financing policy (aggressive, moderate, or conservative) are they following?

Working Capital Financing Policies:Working capital refers to the funds a company uses to finance its…

Answered: Laroux Products has the following…

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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Sugar Corporation is considering what level of current assets to maintain, as well as whether to use more or less long-term debt, as opposed to short-term debt. Factors to consider: Fixed assets - $6,000,000 Earnings before interest and taxes - $ 800,000 Tax rate – 30 percent Optimal capital structure – 60 percent equity, 40 percent debt Interest on short-term debt – 5 percent Interest on long-term debt – 8 percent Current asset level possibilities. Aggressive - $1,000,000 Conservative - $1,500,000. Level of short-term debt possibilities. Aggressive – 70 percent of total debt. Conservative – 40 percent of total debt. Required: Calculate the return on equity for the aggressive and conservative plans. Discuss which plan you would choose.
Trapper Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 205,000 shares of stock outstanding. Under Plan II, there would be 155,000 shares of stock outstanding and $2.3 million in debt outstanding. The interest rate on the debt is 6 percent, and there are no taxes. a. If EBIT is $250,000, what is the EPS for each plan? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. If EBIT is $500,000, what is the EPS for each plan? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. What is the break-even EBIT? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)
fin320 (Capital structure analysis)The Karson Transport Company currently has net operating income of $494,000 and pays interest expense of $194,000. The company plans to borrow $1.05 million on which the firm will pay 12 percent interest. The borrowed money will be used to finance an ivestment that is expected to increase the firm's net operating income by $397,000 a year. What is Karson's times interest earned ratio before the loan is taken out and the investment is made? The times interest earned ratio is ___times. (Round to two decimal places.) What effect will the loan and the investment have on the firm's times interest earned ratio? The new times interest earned ratio ___times. (Round to two decimal places.)
ABC Corp is a manufacturing company with the following information: 1, Financial Statements: Net Income: $10 million Depreciation: 55 million Capital Expenditures (CapEx): $8 million Changes in Working Capital. $2 million (increase) 2. Balance Sheet Total Debt: $40 million (long-term debt) Total Equity: $60 million Total Assets $100 million 3. Market information: Risk Free Rate: 3% Market Risk Premium: 5% Comparable Companies Unlevered Beta 1.0 (overage of industry peers) Tax Rate: 30% Current Stock Price: $25 per share Number of Shares Oustanding 4 million 4. Assumptions: Terminal Growth Rate: 5% Long-term WACC: 0.25% less than the Initial WACC Questions: a. Calculate the Free Cash Flow to the Firm (FCFF) for ABC Corp for the next five years. b. Determine the Cost of Equily using the Capital Asset Pricing Model (CAPM) with unleverted bela. c. Cakulate the Levered Beta for ABC Corp by using the industry average unlovered beta and the company's capital structure d. Calculate the Cost of…
Foundation, Incorporated, is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 185,000 shares of stock outstanding. Under Plan II, there would be 135,000 shares of stock outstanding and $1.9 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes. a. If EBIT is $425,000, what is the EPS for each plan? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. If EBIT is $675,000, what is the EPS for each plan? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. What is the break-even EBIT? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) a. Plan I EPS a. Plan II EPS b. Plan I EPS b. Plan II EPS c. Break-even EBIT
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Foundation, Inc., is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 145,000 shares of stock outstanding. Under Plan II, there would be 125,000 shares of stock outstanding and $716,000 in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes. Use M&M Proposition I to find the price per share of equity under each of the two proposed plans. What is the value of the firm? Input Area: Plan 1: Shares outstanding Plan II: Shares outstanding Debt outstanding Interest rate 2 ЕВIТ BEBIT 145,000 125,000 $716,000 8% $300,000 $600,000 1 5 (Use cells A6 to B13 from the given information
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Foundation, Incorporated, is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 185,000 shares of stock outstanding. Under Plan II, there would be 135,000 shares of stock outstanding and $2.29 million in debt outstanding. The interest rate on the debt is 5 percent and there are no taxes. a. Use M&M Proposition I to find the price per share. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the value of the firm under each of the two proposed plans? (Do not round intermediate calculations and round your answers to the nearest whole dollar amount, e.g., 32.) a. Share price b. All-equity firm value b. Levered plan firm value

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