Last year, Cayman Corporation had sales of $6,608,800, total variable costs of $2,695,237, andtotal fixed costs of $1,517,037. In addition, they paid $480,000 in interest to bondholders.Cayman has a 21% marginal tax rate. If Cayman's sales increase 10%, what should be the increasein earnings per share? SET YOUR CALCULATOR TO 4 DECIMAL PLACES. ROUND TO 2DECIMAL PLACES AT THE END. DO NOT ENTER THE % SIGN. FOR EXAMPLE, IF YOURANSWER IS 9.4567, ENTER IT AS 9.46.

Degree of Combined Leverage= Contribution / Earnings before tax=( Sales - Variable cost ) / ( Sales…

Answered: Last year, Cayman Corporation had sales…

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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Wilde Software Development has a 9% unlevered cost of equity. Wilde forecasts the following interest expenses, which are expected to grow at a constant 5% rate after Year 3. Wilde's tax rate is 25%. Year 1 Year 2 Year 3 Interest expenses $75 $90 $120 What is the horizon value of the interest tax shield? Do not round intermediate calculations. Round your answer to the nearest cent. $ What is the total value of the interest tax shield at Year 0? Do not round intermediate calculations. Round your answer to the nearest cent. $
Consider the following information for Federated Junkyards of America. Debt: $65,000,000 book value outstanding. The debt is trading at 86% of book value. The yield to maturity is 9%. Equity: 1,500,000 shares selling at $32 per share. Assume the expected rate of return on Federated’s stock is 18%. Taxes: Federated’s marginal tax rate is Tc = 0.21. Calculate the weighted-average cost of capital (WACC).
Suppose a firm's tax rate is 35%. a. What effect would a $9.64 million operating expense have on this year's earnings? What effect would it have on next year's earnings? b. What effect would an $8.70 million capital expense have on this year's earnings if the capital is depreciated at a rate of $1.74 million per year for five years? What effect would it have on next year's earnings? a. What effect would a $9.64 million operating expense have on this year's earnings? Earnings would increase (decline) by $ ☐ million. (Round to two decimal places, and use a negative number for a decline.) What effect would it have on next year's earnings? (Select the best choice below.) A. There would be no effect on next year's earnings. B. Next year's earnings will be affected by a decline of $3.37 million. C. Next year's earnings will be affected by an increase of $3.37 million. D. Next year's earnings will be affected by the same amount. b. What effect would an $8.70 million capital expense have on…
Your firm currently has $76 million in debt outstanding with a 9% interest rate. The terms of the loan require it to repay $19 million of the balance each year. Suppose the marginal corporate tax rate is 22%, and that the interest tax shields have the same risk as the loan. What is the present value of the interest tax shields from this debt? The present value of the interest tax shields is $ million (Round to two decimal places.)
Laurel, Inc., has debt outstanding with a coupon rate of 5.9% and a yield to maturity of 7.1%. Its tax rate is 35%. What is Laurel's effective (after-tax) cost of debt? NOTE: Assume that the debt has annual coupons. Note: Assume that the firm will always be able to utilize its full interest tax shield. The effective after-tax cost of debt is %. (Round to four decimal places.)
Last year Rocco Corporation's sales were $700 million. If sales grow at 6.0% per year, how large (in millions) will they be 8 years later? a. $1,148.35 million b. $1,036.00 million c. $1,115.69 million d. $742.00 million e. $1,052.54 million
Your firm currently has $108 million in debt outstanding with a 10% interest rate. The terms of the loan require it to repay $27 million of the balance each year. Suppose the marginal corporate tax rate is 21%, and that the interest tax shields have the same risk as the loan. What is the present value of the interest tax shields from this debt? The present value of the interest tax shields is $ ☐ million. (Round to two decimal places.)
Last year, Park Keeper Inc (PKI) earned $18 per shared and reinvested all of its earnings in the company. PKI expects earnins to grow at 20% for the next 3 years. At the end of year 3, PKI will distribute 25% of the year 3 earnings to investors. What do you expect the year 3 dividedends to be?
An all -equity firm reports a net profit margin of 12% on sales of $6 million. If the tax rate is 35%, what is the pretax profit?
1
Tool Manufacturing has an expected EBIT of $81,000 in perpetuity and a tax rate of 24 percent. The firm has $230,000 in outstanding debt at an interest rate of 5.1 percent, and its unlevered cost of capital is 10.9 percent. What is the value of the firm according to M&M Proposition I with taxes? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Value of the firm
Bruce & Co. expects its EBIT to be $100,000 every year forever. The firm canborrow at 11 percent. Bruce currently has no debt, and its cost of equity is18 percent. The tax rate is 31 percent.Given the above information;a) Complete the table given below for varying levels of debt below by usinga mix of the given information and using your own computations.EBIT $100,000Cost of debt 11%Cost of equity when unlevered 18%Tax rate 31%Debt $0 $10,000 $20,000 $30,000Cost of Equity when leveredEquityD/EVuVLWACCb) Plot the results from the table into the following two graphs:i) Value of the firm vis-à-vis- Total debtii) Cost of capital of the firm vis-à-vis D/E ratio.iii) Which MM propositions have you demonstrated?

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