(Liquidity Analysis) The King Carpet Company has $3,190,000 in cash and a total of $12,490,000 in currentassets. The firm's current liabilities equal $5,020,000 such that the firm's current ratio equals 2.5. The company'smanagers want to reduce the firm's cash holdings down to $1,090,000 by paying $566,000 in cash to expandthe firm's truck fleet and using $1,534,000 in cash to retire a short-term note. If they carry this plan through, whatwill happen to the firm's current ratio?The new current ratio is(Round to one decimal place.)

The current ratio is the amount of Current assets available per dollar of current liabilities of the…

Answered: (Liquidity Analysis) The King Carpet…

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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The firm Amble is entirely financed by equity. It has 4 million shares and a current share price of $8. It is public knowledge that the firm's current management is inefficient and the firm's share price would be $11 if well managed. Amble's shares are owned entirely by small shareholders. The administrative costs to acquire Amble would be $0.14 million. An acquirer can gain control of the firm and manage it efficiently if they can purchase at least 51% of its shares. Assume the market is semi-strong form efficient. (a) Lawson, an entrepreneur, can secretly buy 5% of Amble's shares at the current market price, then make a public bid for a further 46% of the total number of shares at $11 each. What is Lawson's profit? Will the takeover go ahead? Explain. (b) Assume that Lawson implements the strategy described in part (a). Amble has made a provision that when a potential acquirer reaches a holding of 16% of its shares, all shareholders except the acquirer will be able to buy one new…
Meyer Inc's total invested capital is $610,000, and its total debt outstanding is $185,000. The new CFO wants to establish a total debt to total capital ratio of 55%. The size of the firm will not change. How much debt must the company add or subtract to achieve the target debt to capital ratio?
15
A company begins with the following simple balance sheet: $10 million in real assets; $1 million cash; $5.5 million each in owners’ equity and debt. Which of the following actions will decrease a company’s leverage ratio? Choose two Use half of the cash from the balance sheet to purchase equipment Borrow an additional $1 million and purchase equipment Raise an additional $1 million in equity to purchase equipment Raise an additional $1 million in equity to pay off debt
Banque du Langenberg holds $575 million interest producing assets earning a net interest margin (NIM) of 2.50%. The iniital net interest income is thus $14.375 million. The bank's President pursues a strategy of holding longer dated, higher risk assets while also increasing leverage and as a result the net interest margin expands by 25 basis points (or 10% on 2.50%) and the total asset base increases by 20%. What is the new net interest income? Original scenario Net interest margin Total assets (millions) 1.00% $2 Rise in nim 3.0% Rise in total assets 3.0% Original New scenario Scenario Net interest margin 1.00% 1.03% Total assets $2 $2 Rise in nim 3.0% Rise in total assets 3.0% Net interest income $0.020 $0.021
A firm has a market value equal to its book value. Currently, the firm has excess cash of $500 and other assets of $8,000. Equity is worth $8,500. The firm has 850 shares of stock outstanding and net income of $1,200. What will the new earnings per share be if the firm uses its excess cash to complete a stock repurchase?
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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?.
Overnight Publishing Company (OPC) has $2.7 million in excess cash. The firm plans to use this cash either to retire all of its outstanding debt or to repurchase equity. The firm's debt is held by one institution that is willing to sell it back to OPC for $2.7 million. The institution will not charge OPC any transaction costs. Once OPC becomes an all-equity firm, it will remain unlevered forever. If OPC does not retire the debt, the company will use the $2.7 million in cash to buy back some of its stock on the open market. Repurchasing stock also has no transaction costs. The company will generate $1,320,000 of annual earnings before interest and taxes in perpetuity regardless of its capital structure. The firm immediately pays out all earnings as dividends at the end of each year. OPC is subject to a corporate tax rate of 22 percent and the required rate of return on the firm's unlevered equity is 13 percent. The personal tax rate on interest income is 20 percent and there are no…
Roybus, Inc., a manufacturer of flash memory, just reported that its main production facility in Taiwan was destroyed in a fire. Although the plant was fully insured, the loss of production will decrease Roybus's free cash flow by $181 million at the end of this year and by $63 million at the end of next year. a. If Roybus has 32 million shares outstanding and a weighted average cost of capital of 13.8%, what change in Roybus's stock price would you expect upon this announcement? (Assume that the value of Roybus's debt is not affected by the event.) b. Would you expect to be able to sell Roybus stock on hearing this announcement and make a profit? Explain.

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