**Chapter 15 Homework #2**Coastal Carolina Heating and Cooling Inc. has a 6-month backlog of orders for its patented solar heating system. To meet this demand, management plans to expand production capacity by 25% with a $15 million investment in plant and machinery. The firm wants to maintain a 55% debt level in its capital structure. It also wants to maintain its past dividend policy of distributing 50% of last year’s net income. In 2021, net income was $5 million. How much external equity must Coastal Carolina seek at the beginning of 2022 to expand capacity as desired? Assume that the firm uses only debt and common equity in its capital structure. Write out your answer completely. For example, 25 million should be entered as 25,000,000. Round your answer to the nearest cent.$______

External finance required is the money required for the growth and expansion of the company that may…

Answered: oastal Carolina Heating and Cooling…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter4: Financial Planning And Forecasting

Section: Chapter Questions

Problem 6P

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Broussard Skateboard’s sales are expected to increase by 15% from $8 million in 2018 to $9.2 million in 2019. Its assets totaled $5 million at the end of 2018. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2018, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 6%, and the forecasted payout ratio is 40%. Use the AFN equation to forecast Broussard’s additional funds needed for the coming year.
19
Nugent Communication Corp. is investing $8,501,547 in new technologies. The company expects significant benefits in the first three years after installation (as can be seen by the following cash flows), and smaller constant benefits in each of the next four years. Year 1 2 3 4-7 Cash Flows $1,736,907 $4,841,362 $2,794,697 $1,009,125 What is the discounted payback period for the project assuming a discount rate of 10 percent?
Employees at JPGR Inc have been busy evaluating a potential new $9 million investment for their firm that would last 9 years. The operations and inventory managers believe that the firm would not need to invest now in net working capital (NWC), but expect that expenses will increase by $5.65 million per year, starting a year from now. The marketing team believes that sales will vary year to year, but equate to a $7.45 million annuity, starting a year from now. The investment assets will be depreciated to zero over the life of the project, but should yield scrap value of $550,000. The firm faces a 30% tax rate and the firm would require a return of 12.5% APR compounded annually on this project. (A) What is the NPV of the project? (B) Based on value reached in part (A), should the firm accept or reject the project?
Employees at JPGR Inc have been busy evaluating a potential new $9 million investment for their firm that would last 9 years. The operations and inventory managers believe that the firm would not need to invest now in net working capital (NWC), but expect that expenses will increase by $5.65 million per year, starting a year from now. The marketing team believes that sales will vary year to year, but equate to a $7.45 million annuity, starting a year from now. The investment assets will be depreciated to zero over the life of the project, but should yield scrap value of $550,000. The firm faces a 30% tax rate and the firm would require a return of 12.5% APR compounded annually on this project. (A) What is the NPV of the project? (B) Based on value reached in part (A), should the firm accept or reject the project? (C) By what percent would projected sales have to rise or fall to reverse the above decision?
3 TataCoo Inc is facing a new investment opportunity. The project will require $ 15 million initial investment and is expected to generate volatile cash flow during the first six years. The estimated after-tax cash flow during year 1 through 6 is given below. From year 7, the after-tax cash flow is expected to grow at a constant growth rate of 2% per year. The company's current balance sheet shows a $2 billion debt in book value and the debt is trading at 90% of book value. The debt beta is 0.6. The market value of equity of the company is $3 billiion and the equity beta is 2.5. The company has kept a stable capital structure in the past. To take this new investment project, the company will issue $10 million new debt at the current borrowing cost. The underwriter charges 1.5% of debt issue as their commission. The company plans to gradually reduce its borrowing in the first 6 years and then return to its previous stable capital structure. Debt repayment scchedule is given below.…
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $26,145 2 40,000 3 20,000 4 10,000 Thereafter 0 Expenses are expected to be 50% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $40,000 in plant and equipment that will be depreciated using the straight-line method over 5 years. The firm recently spent $2,000 on a study to estimate the revenues of the new product. The tax rate is 20%. What is the operating cash flow in year 1? Answer to nearest whole dollar amount.
Answer
5
Crazytown Motors is expected to have an EBIT of $680,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $45,000, $9,000, and $40,000, respectively. All cash flow items are expected to grow at 6 percent per year for two years. After Year 3, the CFA is expected to grow at 3 percent indefinitely. The company currently has $3 million in debt and 250,000 shares outstanding. The company's WACC is 9.5 percent and the tax rate is 20 percent. What is the present value of terminal value? Show your steps. What is the price per share of the company's stock? Show your steps.
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