Problem 6-21King Lyon has the following assetsCurrent assetsCapital assetsTotal assets$2,560,0007,550,000$10,110,000During 4 months of the year, current assets drop to $1,050,000 (total assets will then be $8,600,000). Its operating profit (EBIT) isexpected to be $487,500. Its tax rate is 30 percent. Shares are valued at $20. Its capital structure is short-term financing at 3 percentand long-term financing of 30 percent equity, 70 percent debt at 5 percenta. Calculate expected EPS if the firm is perfectly hedged. (Do not round intermediate calculations and round your final answer to 2decimal places.)EPS$ 0.30

Current Assets = $2,560,000Capital Assets = $7,550,000Total Assets = $10,110,000During 4…

Answered: Problem 6-21 King Lyon has the…

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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Intro Terence Terraforming Inc. has a capital structure of 23% debt and 77% common stock. The expected return on the firm's debt is 5.3% (pre-tax) and the expected return on the firm's equity is 9%. The firm's marginal tax rate is 21%. Part 1 What is the company's weighted average cost of capital? 3+ decimals Submit
Find the value of the company (assume the value of operations is 200 mil) Value of the operations FCF WACC Constant Growth Rate ST Investments Debt Pref. Stock Number of Shares O $175,000,000 O $100,000,000 O $200,000,000 O $125,000,000 200,000,000 $10,000,000 8.5% 4% $50,000,000 $100,000,000 $25,000,000 5,000,000
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Problem 7-06Value of Operations: Constant Growth EMC Corporation has never paid a dividend. Its current free cash flow of $430,000 is expected to grow at a constant rate of 4.4%. The weighted average cost of capital is WACC = 11%. Calculate EMC's estimated value of operations. Round your answer to the nearest dollar.
Problem 20-03 Fill in the table using the following information.Assets required for operation: $11,000Firm A uses only equity financingFirm B uses 30% debt with an 8% interest rate and 70% equityFirm C uses 50% debt with a 10% interest rate and 50% equityFirm D uses 50% preferred stock financing with a dividend rate of 10% and 50% equity financingEarnings before interest and taxes: $1,100If your answer is zero, enter "0". Round your answers for monetary values to the nearest cent. Round your answers for percentage values to one decimal place. A B C D Debt $ $ $ $ Preferred stock $ $ $ $ Common stock $ $ $ $ Earnings before interest and taxes $1,100.00 $1,100.00 $1,100.00 $1,100.00 Interest expense $ $ $ $ Earnings before taxes $ $ $ $ Taxes (40% of earnings) $ $ $ $ Preferred stock dividends $ $ $ $ Income available to common stockholders $…
Colter Steel has $5,000,000 in assets. Temporary current assets $ 2,000,000 Permanent current assets 1,550,000 Fixed assets 1,450,000 Total assets $ 5,000,000 Assume the term structure of interest rates becomes inverted, with short-term rates going to 11 percent and long-term rates 3 percentage points lower than short-term rates. Earnings before interest and taxes are $1,060,000. The tax rate is 20 percent. If long-term financing is perfectly matched (synchronized) with long-term asset needs, and the same is true of short-term financing, what will earnings after taxes be?
Problem 9-14 If a firm has the following sources of finance, Current liabilities $ 90,000 Long-term debt 300,000 Preferred stock 85,000 Common stock 180,000 earns a profit of $45,000 after taxes, and pays $9,000 in preferred stock dividends, what is the return on assets, the return on total equity, and the return on common equity? Round your answers to two decimal places. Return on assets: % Return on total equity: % Return on common equity: % Problem 9-15 A firm has no cash sales (all sales are on credit and are collected 28 days after the sale). If the receivables are $164,000, what is the level of sales? Assume there are 365 days in a year. Round your answer to the nearest dollar. $ eBook Problem 9-16 A firm’s balance sheets for the last two years are as follows: YEAR 20X1 Assets Liabilities and Equity Cash $ 5,000 Accounts payable $ 12,000 Accruals 7,000 Accounts receivable 16,000 Current bank note 12,000…
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- 36 - 21 and administrative expenses Research and development Depreciation and amortization Operating Income Other income Earnings before interest and taxes (EBIT) Interest income (expense)_ Pretax income - 4 - 5 - 5 -5 23 21 1. 24 26 - 7 14 19 - 4 - 5 Taxes Net Income 10 14 Consider the above Income Statement for CharmCorp. All values are in millions of dollars. If CharmCorp. has 7 million shares outstanding, and its managers and employees have stock options for 2 million shares, what is its diluted EPS in 2009? A. $1.87 B. $1.56 C. $1.24 D. $0.78
Assume the Hiking Shoes division of the All About Shoes Corporation had the following results last year (in thousands). Management's target rate of return is 5% and the weighted average cost of capital is 25%. Its effective tax rate is 30%. $13,000,000 1,300,000 1,500,000 Sales Operating income Total assets Current liabilities 810,000 What is the division's sales margin? O A. 10.00% O B. 54.00% O C. 866.67% O D. 86.67%
Problem 18-4 WACC Use the following information: Debt: $69,000,000 book value outstanding. The debt is trading at 95% of book value. The yield to maturity is 10%. Equity: 1,900,000 shares selling at $36 per share. Assume the expected rate of return on Federated's stock is 19%. • Taxes: Federated's marginal tax rate is Tc = 0.21. ● ● Suppose Federated Junkyards decides to move to a more conservative debt policy. A year later, its debt ratio is down to 16.50% (D/V= 0.1650). The pre-tax cost of debt has dropped to 9.6%. The company's business risk, opportunity cost of capital, and tax rate have not changed. Use the three-step procedure to calculate Federated's WACC under these new assumptions. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. > Answer is complete but not entirely correct. Weighted-average cost of capital 14.59 X %

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