QUESTION 43A company with a Degree of Financial Leverage of 2.0 means:A. For every 1% increase in Operating Income, Earnings Per Share would increase 0%B. For every 1% increase in Operating Income, Earnings Per Share would increase 3%C. For every 1% increase in Operating Income, Earnings Per Share would increase 2%O The Giants will win the Super BowlQUESTION 44For a company with a Degree of Operating Leverage of 3.5:OA. A. For every 1% increase in production and sales, Earnings Per Share would increase 3.5%B. B. For every 1% increase in production and sales, Operating Income would increase 3.5%Oc.C. For every 1% increase in production and sales, Net Income would increase 3.5%D. D. The Yankees will win the World SeriesQUESTION 45To reduce the overall risk of a company, the CEO should seek out acquisitions that are:OA. A. Highly correlated to their existing businessB. B. Negatively correlated to their existing businessOc.c. Buy US Treasury BondsOD. D. None of the above

Degree of financial leverage = % change in net income / % change in EBIT

QUESTION 43 A company with a Degree of Financial Leverage of 2.0 means: O A. For every 1% increase in Operating Income, Earnings Per Share would increase 0% O B. For every 19% increase in Operating Income, Earnings Per Share would increase 3% O C. For every 19% increase in Operating Income, Earnings Per Share would increase 2% The Giants will win the Super Bowl QUESTION 44 For a company with a Degree of Operating Leverage of 3.5: OA. A. For every 1% increase in production and sales, Earnings Per Share would increase 3.5% OB. B. For every 1% increase in production and sales, Operating Income would increase 3.5% Oc.C. For every 1% increase in production and sales, Net Income would increase 3.5% OD.D. The Yankees will win the World Series QUESTION 45 To reduce the overall risk of a company, the CEO should seek out acquisitions that are: OA. A. Highly correlated to their existing business B. B. Negatively correlated to their existing business Oc.C. Buy US Treasury Bonds OD. D. None of the above

QUESTION 43 A company with a Degree of Financial Leverage of 2.0 means: O A. For every 1% increase in Operating Income, Earnings Per Share would increase 0% O B. For every 19% increase in Operating Income, Earnings Per Share would increase 3% O C. For every 19% increase in Operating Income, Earnings Per Share would increase 2% The Giants will win the Super Bowl QUESTION 44 For a company with a Degree of Operating Leverage of 3.5: OA. A. For every 1% increase in production and sales, Earnings Per Share would increase 3.5% OB. B. For every 1% increase in production and sales, Operating Income would increase 3.5% Oc.C. For every 1% increase in production and sales, Net Income would increase 3.5% OD.D. The Yankees will win the World Series QUESTION 45 To reduce the overall risk of a company, the CEO should seek out acquisitions that are: OA. A. Highly correlated to their existing business B. B. Negatively correlated to their existing business Oc.C. Buy US Treasury Bonds OD. D. 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

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QUESTION 19 Use the corporate valuation model to find the intrinsic value of a firm with a long-run growth in FCF of 5.75% and a WACC of 8.12%. The firm has $45 million in debt and preferred stock and has 4.5 million shares of common stock. The FCF for the first 4 years are (in millions of dollars): -$15, $12, $14, $19. OA. $63.90 B. $84.60 OC. $132.61 OD. $154.33
#16
Problem 16-1 EBIT and Leverage [LO1] Fujita, Incorporated, has no debt outstanding and a total market value of $220,000. Earnings before Interest and taxes, EBIT, are projected to be $36,000 of economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 18 percent higher. If there is a recession, then EBIT will be 25 percent lower. The company is considering a $125,000 debt Issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 11,000 shares outstanding. Ignore taxes for this problem. a-1. Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued. (Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round Intermediate calculations and enter your…
00 LO 4. %24 Question 15 calculate weighted average cost of capital if : 1) share of debt from total capital is 25% and cost of debt is 8% 2)share of preference shares from total capital is 25% and the cost of preference shares is 10% 3)share of equity shares from total capital is 35% and the cost of equity shares is 15% 4)share of retained earning from total capital is 15% and the cost of retained earning is 6% Select one: a. 10.1% b. 11.1% c. None of them is correct d. 10.7% CLEAR MY CHOICE < PREVIOUS e Type here to search f2 f4 f5 84 2. 米 %23 3. 2. %24
Problem 15-11 WACC and Optimal Capital Structure F. Pierce Products Inc. is considering changing its capital structure. F. Pierce currently has no debt and no preferred stock, but it would like to add some debt to take advantage of low interest rates and the tax shield. Its investment banker has indicated that the pre-tax cost of debt under various possible capital structures would be as follows: Market Debt- to Value Ratio (wa) 0.0 0.2 0.4 0.6 Market Equity- DEBT EQUITY WACC to-Value Ratio (ws) 1.0 0.8 0.6 0.4 % % Market Debt to-Equity Ratio (D/S) % 0.00 0.25 0.67 1.50 Before Tax Cost of Debt (ra) 7.0% 8.0 0.8 0.2 4.00 15.0 F. Pierce uses the CAPM to estimate its cost of common equity, rs and at the time of the analaysis the risk-free rate is 7%, the market risk premium is 4%, and the company's tax rate is 35%. F. Pierce estimates that its beta now (which is "unlevered" because it currently has no debt) is 1.05. Based on this information, what is the firm's optimal capital structure,…
Problem 29-28 Forecast growth rate Bio-Plasma Corp. is growing at 31% per year. It is all-equity-financed and has total assets of $1.1 million. Its return on equity is 21%. Its plowback ratio is 41%. a. What is the internal growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) b. What is the firm's need for external financing this year? (Enter your answer in dollars not in millions.) c. By how much would the firm increase its internal growth rate if it reduced its payout rate to zero? (Do not round intermediate calculations. Enter your answer as a percent rounded to the nearest whole number.) d. What is the firm's revised need for external financing this year? (Enter your answer in dollars not in millions.) a. Internal growth rate b. External financing need c. Internal growth rate d. External financing need
c 15 at 10:20pm nstructions Question 27 A. Butcher Timber Company hired your consulting firm to help them estimate the cost of equity. The yield on the firm's bonds is 6.75%, and your firm's economists believe that the cost of equity can be estimated using a risk premium of 3.85% over a firm's own cost of debt. What is an estimate of the firm's cost of equity from retained earnings? O 10.60% O 12.40% O 11.34% 9.96% O 12.30% • Previous Next Not saved Submit Quiz SC 80 こニ。 F1 F2 F3 F4 F5 F6 F7 F8 FO F10 % & 2 3 4 5 6 7 8 W R S D E G M I %24
Problem 16-3 ROE and Leverage [LO1, 2] Fujita, Incorporated, has no debt outstanding and a total market value of $408,900. Earnings before Interest and taxes, EBIT, are projected to be $54,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 13 percent higher. If there is a recession, then EBIT will be 21 percent lower. The company is considering a $200,000 debt Issue with an interest rate of 5 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,700 shares outstanding. Ignore taxes for questions (a) and (b). Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant. a-1. Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round Intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g.. 32.16.) a-2. Calculate the percentage changes in ROE when the economy expands or enters a…
QUESTION 5 The magnitude of operating leverage for Blue Ridge Corporation is 3.5 when sales are $200,000 and net income is $36,000. If sales decrease by 6%, net income is expected to decrease by what amount? $2,160 $1,260 $3,420 $7,560
Chapter 9 #3 Assume that a firm has earned before-tax income. The corporate tax rate is 35 percent. If the security used to finance the investment is $1,000 of 10 percent debt, the firm holding the debt (supplying the debt capital) will earn _______________after tax. If the security used to finance the investment is $1,000 of 10 percent preferred stock, the corporation holding the preferred stock (supplying the capital) will earn _______________ after tax with a 0.70 dividend received reduction. If the security used to finance the investment is $1,000 of common stock and if the entire after-tax amount of income is paid as a dividend, the corporation holding the common stock will earn _______________ after tax. The firm has earned before tax income of $153.85.
Module 4 Question 6 (D)
Problem 20-3 Rights The Tennis Shoe Company has concluded that additional equity financing will be needed to expand operations and that the needed funds will be best obtained through a rights offering. It has correctly determined that as a result of the rights offering, the share price will fall from $68 to $64.80 ($68 is the rights-on price; $64.80 is the ex-rights price, also known as the when-issued price). The company is seeking $24 million in additional funds with a per-share subscription price equal to $40. How many shares are there currently before the offering? (Assume that the increment to the market value of the equity equals the gross proceeds from the offering.) (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Number of old shares

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