The following information is about Green Tea Ltd.BeginningNet income book valueof equity($'000 000)Year($'000 000)3242283934447Required:Calculate Equity value using discounted abnormal earnings valuation method. The cost of capital is 10%.

Abnormal earnings = Net Income – Equity Charge = Net Income –…

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Assume Skyler Industries has debt of $4,950,000 with a cost of capital of 7.2% and equity of $4,950,000 with a cost of capital of 10.8%. What is Skyler’s weighted average cost of capital? Round your intermediate calculations and final answer to 3 decimal places.
1. A firm has the following capital structure: Assets thousands € Liabilities and equity thousands € Assets 12,000 Debt 3,000 Common stock 9,000 Total 12,000 Total 12,000 a) What is the firm's weighted average cost of capital at various combinations of debt ans equity, given the following information? Tax rate is 30%. Debt/Assets Debt interest rate Cost of equity 0% 6% 10% 10% 6% 10% 20% 6% 10% 30% 6% 10% 40% 8% 12% 50% 10% 13% 60% 13% 15% b) Construct a balance sheet that indicates the firm's optimal capital structure. Compare this balance sheet with the firm's current balance sheet. What course of action should the firm take? c) As the firm substitutes debt for equity financing, what happens to the cost of capital, and why?
Assume Skyler Industries has debt of $4,386,000 with a cost of capital of 7.5% and equity of $5,814,000 with a cost of capital of 10.2%. What is Skyler’s weighted average cost of capital? Round your intermediate calculations and final answer to 3 decimal places. _____%
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Assume Skyler Industries has debt of $4,398,941with a cost of capital of 9% and equity of $5,435,265 with a cost of capital of 6.1%. What is Skyler’s weighted average cost of capital for debt? Round to the nearest hundredth, two decimal places and submit the answer in a percentage.
Q1: Firm A reports a Profit Margin of 5% and a Total Asset Turnover Ratio of 1.5. Their total asset level is $6,000,000. Assume there are 600,000 shares outstanding and the P/E ratio is 13 times. Also, assume the Return on Equity is 14%. Based on this, calculate the price of share/Book value per share ratio, Q2:XLtd., has a current ratlo of 3.5:1 and quick ratio of 2:1. If excess of current assets over quick assets represented by inventories is $ 24000, Calculate current assets and current llablitles.
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Samuel Corp. provides the following information: EBIT = $386.50 Tax (TC ) = 21% Debt = $700 RU = 10% Question: What is the value of Samuel’s equity?
Here are book- and market-value balance sheets of the United Frypan Company (figures in $ millions): Book-Value Balance Sheet $ 35 65 $ 100 Net working capital Long-term assets Market-Value Net working capital Long-term assets Balance $ 35 190 $225 Debt Equity Sheet Debt a. PV tax shield b. WACC c. New value of the firm Equity $ 40 60 $ 100 Assume that MM's theory holds except for taxes. There is no growth, and the $40 of debt is expected to be permanent. Assume a 21% corporate tax rate. $ 40 185 $ 225 a. How much of the firm's value is accounted for by the debt-generated tax shield? Note: Enter your answer In million rounded to 2 decimal places. b. What is United Frypan's after-tax WACC if "Debt = 6.9% and Equity = 16.1% ? Note: Do not round Intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. c. Now suppose that Congress passes a law that eliminates the deductibility of interest for tax purposes after a grace period of 5 years. What will be the new…
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The following information is about Green Tea Ltd. Beginning Net income book value ($'000 000) of equity (S'000 000) Year 1 32 42 28 39 3 44 47 Required: Calculate Equity value using discounted abnormal earnings valuation method. The cost of capital is 10%.