Wally is pleased with your work. He asks you for help on one more project - and thenyou can take a well-deserved break! He gives you this information that he has collectedon one of AndrewCo's key subsidiaries, Oscar & Ollie Inc.:.•Sales $165,000Net Income = $14,800Dividends $3,300Total Debt = $68,000Total Equity = $51,000=•Wally wants to know -(a) What is the sustainable growth rate?(b) If Oscar & Ollie grows at this rate, how much new borrowing will take place in thecoming year, assuming a constant debt-equity ratio?(c) What growth rate could be supported with no outside financing at all?

Step 1: Calculate the Return on equity as follows: Step 2: Calculate the Retention ratio as…

Answered: Wally is pleased with your work. He…

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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Similar questions

In the following scenario you are the CEO of a corporation (please answer A, B & C) Your company consists of 500 employees and recorded a net profit in 2021 of $9M. You notice your call center (75 employees) seems to be taking up a substantial amount of expense, as it accounted for $3M. You have the option to outsource the call center, costing the 75 employee's their jobs, but saving you $2.5M a year in expense. What do you do; keep the 75 employees at the current salary or outsource the department to save $2.5M annually? Why did you pick what you did? Same question as above, except your 2021 net profit was $1M. Do you outsource to shed $2.5M in expense? Why or why not? Were your answers to A & B the same or different? Did your answers contradict which group you picked in your initial post?
An enterprise owner is considering three options to raise funds for his business activities, each with a different source of capital: • option I-business activities financed exclusively with equity of $600,000, • option II equity amounts to $450,000, the remaining $150,000 is borrowed from a bank at the annual rate of 7.6%, option III equity amounts to $350,000, the remaining $250,000 is borrowed from a bank at the annual rate of 10.4%. The annual net sales revenue is expected to reach $760,000 with total operating costs being $687,000. The enterprise pays 19% income tax. Based on the information provided, determine: return on equity depending on the adopted financing option and its increase (AROE) possible to obtain due to using the debt, ● the degree of financial leverage for each financing option, .threshold EBIT and the threshold return on equity needed for financial leverage to work.
John Tye has just been hired as the new corporate finance analyst at I-Ell Enterprises and has received his first assignment. John is to take the $25 million in cash received from a recent divestiture and use part of these proceeds to retire an outstanding $10 million bond issue and the remainder to repurchase common stock. However, the bond issue cannot be retired for another two years. If John can place the funds necessary to retire this $10 million debt into an account earning 6 percent compounded monthly,how much of the $25 million remains to repurchase stock?
I invest $10,000 in a new company. The company then gets a bank loan for $5,000. The company then buys a machine for $3,000 and inventory for $2,000. Create a balance sheet for the company.
You are the owner of a graphic design firm that has a number of high-end clients. Your business started up last year and is financed by three angel investors. Your initial pro forma showed that you were going to be very profitable and return a maximum of $5 million to the angel investors within five-to-six years. The angel investors expect a return of 14 percent on their investment and originally invested $1 million in your startup. At this rate, the net present value (discounted cash flow of the future returns) was $3.8 million (Present Value of future discounted cash flows). Q2. After the first year, “so far so good,” you have signed on some new clients that show great potential and met the targets of your scorecard. That said, it looks like you will have to expand staff and buy some high-end equipment to satisfy the needs of the new clients. You estimate you will need an additional $2.2 million from investors to carry you through the next two years. With the new investments and…
question 2
You are an investor looking to buy an ownership interest in a business. One company is a manufacturing company and the other is an online retailer. Here are the cash flow summaries for both: MFR ONLINE RETAILER Cash from Operations $75,000 $15,000 Cash from Financing 50,000 75,000 Cash from Investing <75,000> <25,000> Net Free Cash Flow $50,000 $65,000 If your most important investment criterion is “quality of cash flow” which of these two companies would you choose to invest your money in? Why?
Q4) a) Dimond 7 has been operating an excavation company in British Columbia for the last 20 years. The company has been successful in generating revenue and free cash flows (FCF). The company is planning to replace 7 excavators. The supplier will trade in old excavators and will deduct $95,000 from the total purchase price of new excavators. Each new excavator will cost $175,000. The corporate tax rate is 35%. The company beta (BA) is 1.15, risk-free return (Rf) is 0.65%, and the expected rate of return on market portfolio is 6%. Based on the risk, the bank will charge 6.35% on the commercial loans/chattel mortgages granted for excavators. The company will use 90% equity financing and 10% debt financing. Based on the above information, please calculate the WACC. Please show all the calculations by which you came up with the final answer. b) Another excavation company called Diamond 12 has 50,000 shares of common stock outstanding with a market price of $50 per share. It has 1,500…
Ivan Drago is looking to open a snowy mountaintop lodge. He expects the following in the upcoming years: Current Assets Current Liabilities Depr Exp: EBIT Interest Taxes NI Cap Ex $ $ $ $ $ $ $ $ 2043 8,000 $ 6,500 $ 345 $ 2,345 $ 250 $ 500 $ 1,595 $ 250 $ B 2044 $ $ $ 8,500 6,750 350 2,222 $ 222 $ 325 $ 1,675 $ 275 $ 2045 9,000 7,000 400 2,250 235 350 1,665 225 It is the year 2043 in Moscow, Russia. Ivan expects the free cash flow to grow at 5% after 2045. If the WACC is 15%, what is the Terminal Value of the lodge at 2045? (Show your Work)
8. Clara operates a specialized financial services business in Toronto. She's currently considering purchasing an exclusive service agreement from a competitor for $110,000, but would like to ensure that the investment would meet her payback rule of five years. The service agreement would guarantee net returns of $32,000 per year, but would also require her to pay $15,000 for a regulatory audit every other year (starting from the first year). a. What is the payback period on this investment? year(s)? month(s)? b.Does this investment satisfy Clara's payback rule Yes/No Kindly keep all the decimals for all the procedures, DO NOT ROUND

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