I want to this question answer general accounting Westin Manufacturing has $8,400,000 in assets, structured as follows:Asset TypeAmountTemporary current assets $3,600,000Permanent current assets $2,800,000||Fixed assets$2,000,000Total assets$8,400,000The company follows a matching approach to financing, where long-term financing is perfectlymatched with long-term asset needs, and short-term financing is matched with temporary currentassets. The current interest rate environment shows short-term rates at 10% and long-term rates at7.5%. Earnings before interest and taxes (EBIT) are $1,750,000. The tax rate is 35%.Calculate Westin Manufacturing's earnings after taxes.

Step 1: Define Earnings After Taxes (EAT)Earnings After Taxes (EAT) represent the net income a…

Answered: Westin Manufacturing has $8,400,000 in…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 5P

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The discussion of EFN in the chapter implicitly assumed that the company was operating at full capacity. Often, this is not the case. Assume that Rosengarten was operating at 90 percent capacity. Full-capacity sales would be $1,000/.90 $1,111. The balance sheet shows $1,800 in fixed assets. The capital intensity ratio for the company is: Capital intensity ratio = Fixed assets/Full-capacity sales = $1,800/$1,111 - 1.62 This means that Rosengarten needs $1.62 in fixed assets for every dollar in sales when it reaches full capacity. At the projected sales level of $1,250, It needs $1,250 1.62 = $2,025 in fixed assets, which is $225 lower than our projection of $2,250 in fixed assets. So, EFN is $565-225= $340. Blue Sky Mfg., Inc., is currently operating at 90 percent of fixed asset capacity. Current sales are $805,500 and sales are projected to grow to $940,000. The current fixed assets are $775,000. How much in new fixed assets is required to support this growth in sales? (Do not round…
Continental Railroad Company is evaluating three capital investment proposals by using the net present value method. Relevant data related to the proposals are summarized as follows: MaintenanceEquipment RampFacilities ComputerNetwork Amount to be invested $923,468 $584,381 $269,896 Annual net cash flows: Year 1 400,000 292,000 168,000 Year 2 372,000 263,000 116,000 Year 3 340,000 234,000 84,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1. Assuming that the desired rate of return is 12%, prepare a net present value analysis for each proposal. Use…
Continental Railroad Company is evaluating three capital investment proposals by using the net present value method. Relevant data related to the proposals are summarized as follows: MaintenanceEquipment RampFacilities ComputerNetwork Amount to be invested $614,361 $418,741 $186,316 Annual net cash flows: Year 1 318,000 229,000 134,000 Year 2 296,000 206,000 92,000 Year 3 270,000 183,000 67,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1. Assuming that the desired rate of return is 20%, prepare a net present value analysis for each proposal. Use…
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Given the following data:
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Colter Steel has $5,300,000 in assets. Temporary current assets $ 2,600,000 Permanent current assets 1,580,000 Fixed assets 1,120,000 Total assets $ 5,300,000 Assume short-term interest rates are 11 percent and long-term rates are 2 percentage points lower than short-term rates. Earnings before interest and taxes are $1,120,000. The tax rate is 20 percent. If long-term financing is perfectly matched (synchronized) with long-term asset needs, and the same is true of short-term financing, what will earnings after taxes be? Earnings after taxes
The following schedule reflects the incremental costs and revenues for acapital project. The company uses straight-line depreciation. The interestexpense reflects an allocation of interest on the amount of this investment,based on the company’s weighted average cost capital:Revenues $650,000Direct costs $270,000Variable overhead 50,000Fixed overhead 20,000Depreciation 70,000General & administrative 40,000Interest expense 8,000458,000Net profit before taxes $192,000══════The annual cash flow from this investment, before tax considerations, would be:
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Best production company is evaluating the project under profitability index. Initialinvestment is $400,000 and net present value is $1,100,000. Profitability index of theproject is: None of the above2.750.361
Residual income is the excess of operating income over the cost of capital associated with the deployed assets. Following is information for four segments. Experiment with alternative rates of the cost of capital by using the pick list choices associated with the boxed area. Note how the relative residual income changes between the units based on the interest rate assumption! What do you wish to assume for the interest rate? >>>> Operating income Operating assets Assumed interest rate Cost of Capital Residual income Segment A 1,200,000 8,000,000 X 0 1,200,000 Segment B 1,000,000 4,000,000 X 0 1,000,000 Segment C 750,000 2,000,000 X 0 750,000 0% Segment D 500,000 600,000 X 0 500,000

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