Phil plc and Costas plc are identical firms except that Costas is more levered. Both companies will remain in business for one moreyear. The economy is has recently been expanding. According to consensus forecasts, the probability of the continuation of thecurrent expansion is 60% for the next year, and the probability of a recession is 40%. If the expansion continues, each firm willgenerate profit before interest and taxes of £2 million. If a recession occurs, each firm will generate profit before interest and taxesof £800,000. Phil's debt obligation requires the firm to pay £750,00 at the end of the year. Costas's debt obligation requires thefirm to pay £1 million at the end of the year. Neither firm pays taxes. Assume a discount rate of 15 per cent. What is the marketvalue of (i) Phil plc and (ii) Costas plc?Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.None of the aboveb(i1) £1,321,739 and (i) £1,153,435(1) £1,530,435 and (i) £1,530,435d(1) £1,321,739 and (il) £1,321,739(1) £1,530,435 and (ii) £1,321,739UnansweredSave

in this we have to calculate expected profit.

Phil plc and Costas plc are identical firms except that Costas is more levered. Both companies will remain in busin year. The economy is has recently been expanding. According to consensus forecasts, the probability of the contia current expansion is 60% for the next year, and the probability of a recession is 40%. If the expansion continues, e generate profit before interest and taxes of £2 million. If a recession occurs, each firm will generate profit before in of £800,000. Phil's debt obligation requires the firm to pay £750,00y at the end of the year. Costas's debt obligation firm to pay £1 million at the end of the year. Neither firm pays taxes. Assume a discount rate of 15 per cent. What is value of (i) Phil plc and (ii) Costas plc? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. None of the above

Phil plc and Costas plc are identical firms except that Costas is more levered. Both companies will remain in busin year. The economy is has recently been expanding. According to consensus forecasts, the probability of the contia current expansion is 60% for the next year, and the probability of a recession is 40%. If the expansion continues, e generate profit before interest and taxes of £2 million. If a recession occurs, each firm will generate profit before in of £800,000. Phil's debt obligation requires the firm to pay £750,00y at the end of the year. Costas's debt obligation firm to pay £1 million at the end of the year. Neither firm pays taxes. Assume a discount rate of 15 per cent. What is value of (i) Phil plc and (ii) Costas plc? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. None of the above

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

See similar textbooks

Similar questions

Vijay
Shabbona Partners expects to have free cash flows of $38,950,000 next year, and free cash flows are expected to grow at a constant rate of 3% per year. If the firm's WACC is 9% per year, what is the value of Shabbona's operations?
Tallinn Financial forecasts €200,000 in net income next fiscal year and ending total assets for €600,000. Tallinn pays 60% of its net income out in dividends. Tallinn’s current shareholder equity €240,000 and current liabilities are €100,000. Current liabilities are forecast to increase by €20,000 and debt (long-term) is expected to remain constant. What is Tallinn’s net new financing needed next year?
Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 22% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g =o. The company's last dividend, Do, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock? Do not round intermediate calculations. O a $28.97 O b. $27.37 O c. $23.39 O d. $32.69 O e. $26.57
Beginning three months from now, you want to be able to withdraw $3,600 each quarter from your bank account to cover college expenses over the next four years. If the account pays .76 percent interest per quarter, how much do you need to have in your bank account today to meet your expense needs over the next four years?
Good Time Company is a regional chain department store. It will remain in business for one more year. The probability of a boom year is 50 percent and the probability of a recession is 50 percent. It is projected that the company will generate a total cash flow of $126 million in a boom year and $78 million in a recession. The company's required debt payment at the end of the year is $75 million. The market value of the company's outstanding debt is $58 million. The company pays no taxes. What is the expected rate of return on the company's debt? O 34.5% O O 29.3% O 100%
HP S/ n is entering into 3 yrs remodelling and expansion project. The construction will have a limiting effect on earning during that time ,but when completed ,it sholud allow the company to enjoy much improved growth in earning and dividends .last year ,the company paid a dividend of rm3.40 .it expect zero growth in the next year .in year 2 &3, 5% growth sholud be a constant 10% per year.what is the maximum price share that an investor who require a return of 14% sholud pay for HPH common stock?
Net Income for Company A is $200,000 in 2014, $300,000 in 2015, $400,000 in 2016, $500,000 in 2017, and $600,000 in 2018. The expected growth for all years after 2018 is 5%, the 90-Day T-Bill Rate is 20%, and the appropriate percentage above risk-free rate is 12%. Using this information, what is the reasonable value for Company A based on its future income stream for 2014 to 2018? A. 1,394,267.03 B. 4,394,267.03 A or B?
Good Time Company is a regional chain department store. It will remain in business for one more year. The probability of a boom year is 70 percent and the probability of a recession is 30 percent. It is projected that the company will generate a total cash flow of $186 million in a boom year and $77 million in a recession. The company's required debt payment at the end of the year is $111 million. The market value of the company's outstanding debt is $84 million. The company pays no taxes. a. What payoff do bondholders expect to receive in the event of a recession? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the promised return on the company's debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the expected return on the company's debt? (Do not round intermediate calculations and…
Data are as follows: In year 2020, sales are 150,000 units with Selling price per unit of 10 and VC per unit iof 6.50 per unit. Fixed cost is 155,000 and Interest cost is 90,000. Q3. Assume that the company expects to have sales increase by 20%, what will be the resulting change in EBIT in year 2021? • 28.38% • 26.45% • 25% • 33.33%
Jim's Espresso expects sales to grow by 10.4% next year. Assume that Jim's pays out 85.9% of its net income. Use the following statements LOADING... and the percent of sales method to forecast: a. Stockholders' equity b. Accounts payable The Tax Cuts and Jobs Act of 2017 temporarily allows 100% bonus depreciation (effectively expensing capital expenditures). However, we will still include depreciation forecasting in this chapter and in these problems in anticipation of the return of standard depreciation practices during your career. Income Statement Sales $205,430Costs Except Depreciation (99,920)EBITDA $105,510Depreciation (6,070)EBIT $99,440Interest Expense (net) (570)Pretax Income $98,870Income Tax (34,605)Net Income $64,265 Balance Sheet Assets Cash and Equivalents $14,920Accounts Receivable 2,010Inventories 3,950Total Current Assets $20,880Property, Plant and Equipment 10,070Total Assets $30,950 Liabilities…
Over the next three years, the company Paris is expected to pay dividends as follows: Time 1 2 3 Dividend 15 20 24 Thereafter, Paris dividends are expected to grow at a constant rate of 5% per year. Paris should reinvest 40% of its benefits from T = 2. The expected return regarding Paris stocks is 15% Calculate the stock price at the end T 2. If Paris keeps 40% of its EPS to reinvest in new projects, what must be the retum rate of new investments in order to achieve the dividend growth of 5%? What is the stock price today? If Paris changes its dividend distribution policy and decides to distribute all its benefits to its shareholders from T 3, what would be the impact of this policy on the stock price? Comment on the result.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS