QUESTION 9 A company's projected capital budget is $750,000, its target capital structure is 40% debt and 60% equity, and its forecasted net income is $650,000. If the company follows a residual dividend policy, what total dividends, if any, will it pay out and what is the payout ratio? O 100,000; 18.18% O 250,000; 35.71% O 350,000; 43.75% O 200,000; 30.77% O 140,000; 21.54% LECTION 10 SC 500
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- Year 1 2 3 4 Free cash flow $30 million $35 million $40 million $45 million General Industries is expected to generate the above free cash flows over the next four years, after which they are expected to grow at a rate of 3% per year. If the weighted average cost of capital is 13% and General has cash of $100 million, debt of $80 million, and 50 million shares outstanding, what is General's expected current share price? a. $7.62 b. $7.87 C. $8.27 d. $8.42Problem 13-24 Company Valuation (LO5) Icarus Airlines is proposing to go public, and you have been given the task of estimating the value of its equity. Management plans to maintain debt at 38% of the company’s present value, and you believe that at this capital structure the company’s debt holders will demand a return of 8% and stockholders will require 11%. The company is forecasting that next year’s operating cash flow (depreciation plus profit after tax at 21%) will be $76 million and that investment in plant and net working capital will be $38 million. Thereafter, operating cash flows and investment expenditures are forecast to grow in perpetuity by 4% a year. a. What is the total value of Icarus? b. What is the value of the company’s equity?Question: 5 (Marks 10) XYZ company expects in the coming year: sales of 40,000 units at $10 per unit, variable operating costs of $4 per unit, fixed operating costs of $30,000, interest of $50,000, and preferred stock dividends of $24,000. The Company is in the 40% tax bracket. Compute the following and explain their meaning: - Degree of Operating Leverage (DOL) - Degree of Financial Leverage (DFL) - Degree of Total Leverage (DTL) If XYZ company’s Earnings Per Share (EPS) is currently $7.2, estimate its EPS in case of a 10% increase in EBIT.
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- #18Vd Sub: accountingProblem 19.20 Tomey Supply Company's financial statements for the most recent fiscal year are shown below. The company projects that sales will increase by 15 percent next year. Assume that all costs and assets increase directly with sales. The company has a constant 26 percent dividend payout ratio and has no plans to issue new equity. Any financing needed will be raised through the sale of long- term debt. Prepare pro forma financial statements for the coming year based on this information, and calculate the EFN for Tomey. (Round intermediate calculation to the nearest whole dollar, e.g. 5,275. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Tomey Supply Company Income Statement and Balance Sheet Income Statement Balance Sheet Revenues $1,768,121 Assets Costs 1,116,487 Current Assets $280,754 EBT 651,634 Net Fixed Assets 713,655 Taxes (35%) 228,072 Total assets $994,409 Net Income $423,562 Liabilities and Equity: Current…
- Question 6 "Axon Industries needs to raise $250,000 USDs for a new investment project. If the firm issues 1-year debt, it may have to pay an interest rate of 15%, although Axon's managers believe that 8.5% would be a fair rate given the level of risk. If the firm issues equity, they believe the equity may be underpriced by 11%.What is the cost (in USDs) to current shareholders of financing the project out of equity? Note: Express your answers in strictly numerical terms. For example, if the answer is $500Question 2 A corporate treasury estimates that an investment of $ 50 million to expand the manufacturing capacity of its company's main product line would generate additional cash flows of $ 12 million per year for 5 years. Assuming a discount rate of 8% calculate: a) The Net Present value of the stream of returns of the expansion b) The profitability index c) The internal rate of return d) Should the company proceed with the investment?Question 14 General Electric expects a net income next year of $19.53 million, and a free cash flow of $22.47 million. The company has a marginal corporate tax rate of 35%. Suppose General Electric increases its leverage, such that the interest expense of the company rises by $2.6 million. How will net income change? Show your work. 2. For the same increase in interest expense in part (1), how will free cash flow change? Free cash flow will increase by $2.6 million. Free cash flow will increase by less than $2.6 million. Free cash flow will remain the same. Free cash flow will decrease by less than $2.6 million Free cash flow will decrease by $2.6 million