The Day Company and the Knight Company are identical in every respect except that Day is not levered.Financial information for the two firms appears in the following table. All earnings streams are perpetuities,and neither firm pays taxes. Both firms distribute all earnings available to common stockholdersimmediately.Projected operating incomeYear-end interest on debtMarket value of stockMarket value of debtDay$ 1,100,000$ 4,300,000-Knight$ 1,100,000$ 114,000$ 2,650,000$ 1,900,000a-1 What will the annual cash flow be to an investor who purchases 5 percent of Knight's equity? (Do notround intermediate calculations. Round your answer to the nearest whole number, e.g., 32.)Cash flow$49300a-2 What is the annual net cash flow to the investor if 5 percent of Day's equity is purchased instead?Assume that borrowing occurs so that the net initial investment in each company is equal. The interestrate on debt is 6 percent per year. (Do not round intermediate calculations. Round your answerto the nearest whole number, e.g., 32.)Net cash flow$b. Given the two investment strategies in (a), which will investors choose?KnightDay

Day Company:Projected operating income = $1,100,000Market value of stock = $4,300,000Knight…

Answered: The Day Company and the Knight Company…

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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Given: Firm A is all-equity financed and has total assets of $200 million. Firm B is an identical firm to Firm A, but 70% of its $200 million of total assets are financed with debt bearing an interest rate of 5%. Assume firms pay corporate taxes at the rate of 20% of taxable earnings. Both firms have the same EBIT, $15 million. Compute Firm B's interest deduction. Firm B’s interest deduction is $ ______ million. Keep the result with one decimal.
Financial data for Joel de Paris, Incorporated, for last year follow: Joel de Paris, Incorporated Balance Sheet Assets Cash Accounts receivable Inventory Plant and equipment, nett Investment in Buisson, S.A. Land (undeveloped) Total assets Liabilities and Stockholders' Equity Accounts payable Long-term dept Stockholders' equity. Total liabilities and stockholders' equity Beginning Balance $ 126,000 341,000 577,000 856,000 404,000 249,000 $ 2,553,000 $ 381,000 1,043,000 1,129,000 $ 2,553,000 Ending Balance $ 130,000 477,000 478,000 855,000 431,000 252,000 $ 2,623,000 $ 344,000 1,043,000 1,236,000 $ 2,623,000
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Quantitative Problem: Andrews Corporation has income from operations of $223,000. In addition, it received interest income of $22,300 and received dividend income of $31,100 from another corporation. Finally, it paid $11,600 of interest income to its bondholders and paid $46,800 of dividends to its common stockholders. The firm's federal tax rate is 21%. What is the firm's federal income tax? Do not round intermediate calculations. Round your answer to the nearest dollar.
Provide Answer with calculation and explanation
Fill in the dollar changes caused in the Investment account and Dividend Revenue or Investment Revenue account by each of the following transactions, assuming George Company unes (a) the fair value method and (b) the equity method for accounting for its investments in Tiffany Company (a) Fair Value Method. Transaction (b) Equity Method Investment Dividend Investment Investment Account Revenue Account Revenue 1. At the beginning of Year 1. George bought 40% of Tiffany's common stock at its book value. Total book value of all Tiffany's common stock was $1,000,000 on this date. 2. During Year 1, Tiffany reported $50,000 of net income and paid $50,000 of dividends. 3. During Year 2, Tiffany reported $100,000 of net income and paid $20,000 of dividends. 4. During Year 3, Tiffany reported a net loss of $15,000 and paid $5,000 of dividends. 5. Indicate the Year 3 ending balance in the Investment account, and cumulative totals for Years 1, 2, and 3 for dividend revenue and investment revenue.…
dog subject-Accounting Sanders Inc. reported net income of $880,000 for the year ended December 31. The company had a pretax unrealized holding gain on debt securities of $22,400 and a pretax loss on foreign currency translation adjustment of $64,000. The company’s tax rate is 25%. Prepare a separate statement of comprehensive income beginning with net income. Use a negative sign to indicate a loss. Sanders Inc. Statement of Comprehensive Income For the Year Ended December 31 Net Income Answer Unrealized holding gain on debt security investment, net of tax Answer Loss on foreign currency translation adjustment, net of tax savings Answer Comprehensive income This is a table question
A1 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 A B V 1 X Sales Costs Net income ✓ C Income statement $ Sales increase Payout rate fx $ Dividends Add. To RE D 36,000 29,800 6,200 15% 50% Pro forma income statement Sales Costs Net income E F G Assets $ Total $ Assets H Total I Balance sheet 26,400 Debt Equity 26,400 Total Complete the following analysis. Do not hard code values in your calculations. Pro forma balance sheet Debt Equity Total $ External financing needed $ J 6,300 20,100 26,400 K
A company has reported noncontrolling interests in the latest financial reports, as follows: Net income attributable to NCI Noncontrolling interest in shareholders' equity 772.0 11,556.0 Dividends paid on noncontrolling interests in the CFS 193.0 If net income attributable to NCI grows by 8.0% and the NCI dividend pay-out ratio is 16.0% then what will be reported, in the next balance sheet, for NCI? Select one: 12,196.8 12,123.0 12,256.4 12,135.0
Subject Finance
Interest versus dividend expense Michaels Corporation expects earnings before interest and taxes to be $43,000 for the current period. Assuming a flat ordinary tax rate of 21%, compute the firm's earnings after taxes and earnings available for common stockholders (earnings after taxes and preferred stock dividends, if any) under the following conditions: a. The firm pays $12,100 in interest. b. The firm pays $12,100 in preferred stock dividends. a. Complete the fragment of Michaels Corporation's income statement below to compute the firm's earnings after taxes and earnings available for common stockholders under condition (a). (Round to the nearest dollar.) EBIT Less: Interest expense Earnings before taxes Less: Taxes (21%) Earnings after taxes Less: Preferred dividends Earnings available for common stockholders $ LA $ $ $
Southern Pole is developing a special vehicle for Antarctic exploration. The development requires investments of $100,000 today, $200,000 in 1 year from today and $300,000 in 2 years from today. Net returns for the project are expected to be $96,000 at the end of year over the next 15 years. If the company requires a rate of return of 12% compounded annually-find the NPV of the project. (Chapter 16.2)

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