The CFO of Jupiter Jibs (JJ) expects this year s sales to be $2.5 million. EBIT is expected to be $1 million. The CFO knows that if sales actually turn out to be $2.3 million, JJ s EBIT will be $880,000. What is JJ s degree of operating leverage DO)?
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- The CFO of Jupiter Jibs (JJ) expects this year’s sales to be $2.5 million. EBIT is expected to be $1 million. The CFO knows that if sales actually turn out to be $2.3 million, JJ’s EBIT will be $880,000. What is JJ’s degree of operating leverage (DOL)?The CFO of Ink Imagination (II) wants to calculate next year's EPS using different leverage ratios. II's total assets are $5 million, and its marginal tax rate is 40 percent. The company has estimated next year's EBIT for three possible economic states: $1.2 million with a 0.2 probability, $800,000 with a 0.5 probability, and $500,000 with a 0.3 probability. (1) Calculate II's expected EPS, standard deviation, and coefficient of variation for each of the following capital structure. (2) What capital structure should the firm choose to lower the firm's risk? Leverage (Debt/Assets) 20% Shares of Stock Outstanding 300,000 200,000 Interest Rate 6% 50 10Suppose that Rose Industries is considering the acquisition of another firm in its industry for $137 million. The acquisition is expected to increase Rose's free cash flow by $5 million the first year, and this contribution is expected to grow at a rate of 4% every year thereafter. Rose currently maintains a debt to equity ratio of 1, its corporate tax rate is 21%, its cost of debt rD is 6%, and its cost of equity rE is 10%. Rose Industries will maintain a constant debt-equity ratio for the acquisition. The Free Cash Flow to Equity (FCFE) for the acquisition in year O is closest to ($ Million) (2 decimal places):
- Milton Industries expects free cash flows of $14 million each year. Milton's corporate tax rate is 21%, and its unlevered cost of capital is 14%. Milton also has outstanding debt of $25.57 million, and it expects to maintain this level of debt permanently. a. What is the value of Milton Industries without leverage? b. What is the value of Milton Industries with leverage? a. What is the value of Milton Industries without leverage? The value of Milton Industries without leverage is $ million. (Round to two decimal places.) b. What is the value of Milton Industries with leverage? The value of Milton Industries with leverage is $ million. (Round to two decimal places.)LG Co. is trying to estimate its optimal capital structure. Right now, LG has a capital structure that consists of 20 percent debt and 80 percent equity, based on market values. (Its D/S ratio is 0.25.) The risk-free rate is 4 percent and the market risk premium, rM – rRF, is 5 percent. Currently the company’s cost of equity, which is based on the CAPM, is 12 percent and its tax rate is 40 percent. What would be LG’s unlevered beta and estimated cost of equity if it were to change its capital structure to 40 percent debt and 60 percent equity? [Use Hamada equation] Group of answer choices 1.60, and 10.84% 1.39, and 13.74% 1.39, and 15.24% 1.60, and 14.34% 1.95 and 18.72% 1.15, and 11.28%1) A firm that is currently unlevered has WACC = rS = 10%/year. This company plans to do a recapitalization by issuing debt and repurchasing equity. After the recapitalization, the debt-to-equity (D/E) ratio will be 0.5. If the cost of debt, rD, is 6%, what will be rS after the recapitalization? 2) A firm with wD = 0.35 and wS = 0.65 plans to issue another $100 million of permanent debt. The firm's tax rate is 21%. The bonds will be issued at par with coupon rate = rD = 7%/year. The firm's WACC is 11%/year. By how much will the new debt change the value of the firm, and who will receive this value? A) Firm value will increase by $21 million, and all $21 million will go to the shareholders B) Firm value will increase by $9 million, and 35% will go to the bondholders, 65% to the shareholders C) Firm value will increase by $18.6 million, and 35% will go to the bondholders, 65% to the stockholders D) Firm value will increase by $21 million, and all $21 million will go to the…
- BhupatbhaiSuppose that Portsea Inc. is thinking about acquiring a firm in its industry for $150 million. The acquisition is expected to increase Portsea's free cash flow by $20 million in the first year, and this contribution is expected to grow at a rate of 3% every year thereafter. Assume that Portsea currently maintains a debt-to-equity ratio of 0.80, its corporate tax rate is 30%, its cost of debt is 4%, and its cost of equity is 14% . Further assume that Portsea will maintain a constant debt - equity ratio for the acquisition. What is the free cash flow to equity (FCFE) for the acquisition in year 0 ?The firm want to add some leverage to their firm as they are running their business at a 0% debt level.The firm has a projected EBIT of $198,000 and can issue debt at 5.8% per annum. They wish to increase their D/E ratio to 1.08 at the end of the year. The firm estimates their cost of equity to be 14.1% and pays 34% in taxes per year. what is the firm value after it adds this leverage to the firm?
- A firm that is currently unlevered has WACC = rS = 10%/year. This company plans to do a recapitalization by issuing debt and repurchasing equity. After the recapitalization, the debt-to-equity (D/E) ratio will be 0.5. If the cost of debt, rD, is 6%, what will be rS after the recapitalization?Your company is evaluating a new factory that will cost $14 million to build. Your target debt-equity ratio is 1. The flotation cost for new equity is 7% and the flotation cost for new debt is 4%. The company is planning to use retained earnings for 50% of the equity financing. What are the weighted average flotation costs as a fraction of the amount invested? What are the flotation costs (in $ million )?cont. Skunk Products' EBIT is $1000, its tax rate is 35%, depreciation is $100, capital expenditures are $200, accounts receivable increase by $100, and accounts payable decrease by $100. What is the free cash flow to the firm? The FCFF will grow at 3%, WACC is 10%. What is the value of the company's assets? V = $