This is a more difficult but informative problem. James Brodrick & Sons, Incorporated, is growing rapidly and, if at all possible,would like to finance its growth without selling new equity. Selected information from the company's five-year financial forecastfollows.YearEarnings after tax ($ millions)Capital investment ($ millions)Target book value debt-to-equity ratio (%)Dividend payout ratio (%)Marketable securities ($ millions)(Year 0 marketable securities = $230 million)YearDividends (millions)Divident Payout ratio (%)111002175140?2302132($ millions)3300140?2303172300140a. According to this forecast, what dividends will the company be able to distribute annually without raising new equity and whilemaintaining a balance of $230 million in marketable securities? What will the annual dividend payout ratio be? (Hint: Remembersources of cash must equal uses at all times.)Note: Round dividends to the nearest million dollars and the payout ratio % to the nearest ones place.4?2304233374140?23053005560140?230

The dividend payout ratio refers to the ratio which is used for the calculation of net income paid…

Answered: This is a more difficult but…

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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Given the information below for HooYah! Corporation, compute the expected share price at the end of 2020 using price ratio analysis. Assume that the historical (arithmetic) average growth rates will remain the same for 2020. (Do not round intermediate calculations. Round your answers to 2 decimal places. Exclude negative annual PE and P/CFPS ratios from the average PE and average P/CFPS ratio calculations. When computing annual growth rates, use a positive sign on the annual rate of change if the per share value increased in value and use a negative sign on the annual rate of change if the per share value deceased in value.) Year Price EPS CFPS SPS 2014 $11.00 -7.00 -12.00 8,00 Using PE ratio Using P/CF ratio Using P/S ratio 2015 2016 $47.50 $119.00 -6.29 -9,50 16.50 -1.70 -2.70 19.60 Share Price 2017 $196.00 -.50 10 23.10 2018 $86.00 .07 18 26.60 2019 $16.50 0.06 00 24.95
Charles Jones is evaluating Reliant Home Furnishings by using a three-stage growth model. He has accumulated the following information: · Current FCFF $745 million · Outstanding shares 309.39 million · Equity beta 0.90, · risk-free rate 5.04 percent; · equity risk premium 5.5 percent · Cost of debt 7.1 percent · Marginal tax rate 34 percent · Capital structure 20 percent debt, 80 percent equity · Long-term debt $1.518 billion · Growth rate of FCFF - 8.8 percent annually in stage 1, years 1–4 - 7.4 percent in year 5, - 6.0 percent in year 6, - 4.6 percent in year 7 - 3.2 percent in year 8 and thereafter From the information that Jones has accumulated, estimate the following: b) WACC. c) Total value of the fi rm.
You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.4, a debt-to-equity ratio of .5, and a tax rate of 21 percent. Assume a risk-free rate of 4 percent and a market risk premium of 9 percent. Lauryn’s Doll Co. had EBIT last year of $42 million, which is net of a depreciation expense of $4.2 million. In addition, Lauryn's made $6 million in capital expenditures and increased net working capital by $1.0 million. Assume the FCF is expected to grow at a rate of 3 percent into perpetuity. What is the value of the firm? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
The Wei Corporation expects next year's net income to be $10 million. The firm is currently financed with 35% debt. Wei has $12 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual distribution model (assuming all payments are in the form of dividends), how large should Wei's dividend payout ratio be next year? Round your answer to two decimal places .
Given the information below for HooYah! Corporation, compute the expected share price at the end of 2020 using price ratio analysis. Assume that the historical (arithmetic) average growth rates will remain the same for 2020. (Do not round intermediate calculations. Round your answers to 2 decimal places. Exclude negative annual PE and P/CFPS ratios from the average PE and average P/CFPS ratio calculations. When computing annual growth rates, use a positive sign on the annual rate of change if the per share value increased in value and use a negative sign on the annual rate of change if the per share value deceased in value.) 11111) Year 2014 2015 2016 2017 2018 2019 Price $ 20.00 $ 56.50 $ 128.00 $ 205.00 $ 95.00 $ 25.50 EPS -4.00 -3.29 -1.60 -.43 .06 .06 CFPS -11.00 -8.50 -2.60 -.15 .28 .08 SPS 17.00 25.50 24.10 27.60 31.10 33.95 Share Price Using PE ratio Using P/CF ratio Using P/S ratio
Suppose that a firm's recent earnings per share and dividend per share are $3.10 and $2.10, respectively. Both are expected to grow 7 percent. However, the firm's current P/E ratio of 30 seems high for this growth rate. The P/E ratio is expected to fall to 26 within five years. Compute the dividends over the next five years. (Do not round intermediate calculations. Round your answers to 3 decimal places Years First year Second year Third year Fourth year Fifth year Dividends Compute the value of this stock in five years. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price
Given the information below for HooYah! Corporation, compute the expected share price at the end of 2020 using price ratio analysis. Assume that the historical (arithmetic) average growth rates will remain the same for 2020. (Do not round intermediate calculations. Round your answers to 2 decimal places. Exclude negative annual PE and P/CFPS ratios from the average PE and average P/CFPS ratio calculations. When computing annual growth rates, use a positive sign on the annual rate of change if the per share value increased in value and use a negative sign on the annual rate of change if the per share value deceased in value.) Year 2014 2015 2016 2017 2018 2019 Price $ 20.00 $ 56.50 $ 128.00 $ 205.00 $ 95.00 $ 25.50 EPS -4.00 -3.29 -1.60 -.43 .06 .06 CFPS -11.00 -8.50 -2.60 -.15 .28 .08 SPS 17.00 25.50 24.10 27.60 31.10 33.95 Answer is complete but not entirely correct. Share Price Using PE ratio $ 91.12 Using P/CF ratio $ 54.98 X Using P/S ratio $ 131.06
You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.7, a debt-to-equity ratio of .7, and a tax rate of 21 percent. Assume a risk-free rate of 3 percent and a market risk premium of 8 percent. Lauryn’s Doll Co. had EBIT last year of $59 million, which is net of a depreciation expense of $5.9 million. In addition, Lauryn's made $7.3 million in capital expenditures and increased networking capital by $2.4 million. Assume the FCF is expected to grow at a rate of 4 percent into perpetuity. What is the value of the firm?
Consider a simple firm that has the following market-value balance sheet: Assets Liabilities end equity $1 040 Debt Equity $400 640 Next year, there are two possible values for its assets, each equally likely: $1 180 and $960. Its debt will be due with 4.9% interest. Because all of the cash flows from the assets must go to either the debt or the equity, if you hold a portfolio of the debt and equity in the same proportions as the firm's capital structure, your portfolio should earn exactly the expected return on the firm's assets. Show that a portfolio invested 38% in the firm's debt and 62% in its equity will have the same expected return as the assets of the firm. That is, show that the firm's pre-tax WACC is the same as the expected return on its assets. If the assets will be worth $1 180 in one year, the expected return on assets will be %. (Round to one decimal place.)
you have developed the following pro forma income statement for your? corporation: it represents the most recent? year’s operations, which ended yesterday. a.if sales should increase by 25 ?percent, by what percent would earnings before interest and taxes and net income? increase? b.if sales should decrease by 25 ?percent, by what percent would earnings before interest and taxes and net income? decrease? q c.if the firm were to reduce its reliance on debt financing such that interest expense were cut in? half, how would this affect your answers to parts a and b?? sales $ 45,750,000 variable costs -22,800,000 revenue before fixed costs $ 22,950,000 fixed costs -9,200,000 ebit $ 13,750,000 interest expense -1,350,000 earnings before taxes $ 12,400,000 taxes (50%) -6,200,000 net income $ 6,200,000
You are going to value Lauryn's Doll Company using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.6, a debt-to-equity ratio of 0.6, and a tax rate of 21 percent. Assume a risk-free rate of 6 percent and a market risk premium of 8 percent. Lauryn's Doll Company had EBIT last year of $53 million, which is net of a depreciation expense of $5.3 million. In addition, Lauryn's made $4.75 million in capital expenditures and increased net working capital by $3.1 million. Assume the FCF is expected to grow at a rate of 2 percent into perpetuity. What is the value of the firm? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. > Answer is complete but not entirely correct. Firm value $ 326.94 million
First Bank's annual dividends are indicated below. Find the required rate of return for this stock, assuming the future dividend growth rate will remain the same and the company has an infinite horizon. Assume the January 1, 2011 price of the stock was $31.00. What was the required return for First Bank's stock? Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Dividend $0.85 $0.96 $1.01 $1.14 $1.20 $1.26 $1.42 $1.49 $1.68 $1.90 ..... What was the estimated annual required return for First Bank's stock? % (Round to two decimal places.)

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