Your answer is incorrect.0/1 ECarla Vista Theatres Inc. operates specialty film format theatres that display images of greater size and higher-quality resolution.Carla Vista is considering expanding its theatres in China and needs to raise $459 million in additional debt. However, the company isconcerned about remaining compliant with its existing debt to equity ratio covenant of 1.10:1 and the net debt as a percentage ofcapitalization ratio of 50%. For the fiscal year ended December 31, 2024, an extract of the statement of financial position for CarlaVista Theatres showed the following information: total interest-bearing debt of $648 million, a cash balance of $90 million, andshareholders' equity of $900 million.Determine whether Carla Vista Theatres Inc. could borrow $459 million and remain in compliance with the bank covenants. (Rounddebt to equity ratio to 2 decimal places, e.g. 1.25:1 and net debt as a percentage of total capitalization to O decimal places, e.g. 35%.)Debt to equityNet debt as a percentage of total capitalizationCarla Vista Theatrescannotborrow $459 Million.:138%1

The objective of the question is to determine whether Carla Vista Theatres Inc. can borrow an…

Answered: Your answer is incorrect. 0/1 E Carla…

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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15–3. (Calculating capital structure weights) (Related to Checkpoint 15.1 on page 502) Winchell Investment Advisors is evaluating the capital structure of Ojai Foods. Ojai's balance sheet indicates that the firm has $50 million in total liabilities. Ojai has only $40 million in short- and long-term debt on its balance sheet. However, because inter- est rates have fallen dramatically since the debt was issued, Ojai's short- and long-term debt has a current market price that is 10 percent over its book value, or $44 million. The book value of Ojai's common equity is $50 million, but its market value is cur- rently $100 million. a. What are Ojai's debt ratio and interest-bearing debt ratio calculated using book values? b. What is Ojai's debt-to-enterprise-value ratio calculated using the market values of the firm's debt and equity and assuming excess cash is zero? c. If you were trying to describe Ojai's capital structure to a potential lender (i.e., a bank), would you use the…
Edwards Construction currently has debt outstanding with a market value of $155,000 and a cost of 10 percent. The company has EBIT of $15,500 that is expected to continue in perpetuity. Assume there are no taxes. a-1. What is the value of the company's equity? (Do not round intermediate calculations. Leave no cell blank - be certain to enter "0" wherever required.) a- What is the debt-to-value ratio? (Do not round intermediate calculations and round 2. your answer to the nearest whole number, e.g., 32.) b. What are the equity value and debt-to-value ratio if the company's growth rate is 5 percent? (Do not round intermediate calculations and round your "Debt-to- value" answer to 3 decimal places, e.g., 32.161.) c. What are the equity value and debt-to-value ratio if the company's growth rate is 7 percent? (Do not round intermediate calculations and round your "Debt-to- value" answer to 3 decimal places, e.g., 32.161.)
Spot Company’s balance sheet consists of the following: $790 million and $230 million. Its current after-tax cost of debt is 4% and its cost of equity is 8%. You have been analyzing various market factors and have estimated that the market value of its debt is currently $760 million and the market value of the equity is $690 million. Furthermore, you believe that given current market conditions and the existence of flotation costs, the marginal after-tax cost of debt would be 70 basis points higher than the existing after-tax cost of debt and the marginal cost of equity would be 130 basis points higher. What is the difference in the company's Weighted Average Cost of Capital (WACC) based on the market-based data and the book-value data? Subtract the book value WACC from the market value WACC and present your answer in percentage terms, rounded to decimal places (e.g., 1.23%].Round your answer to 2 decimal places. Please show all work including how to set up in excel. Note:- Do not…
Ursala, Incorporated, has a target debt-equity ratio of 1.43. Its WACC is 9.4 percent, and the tax rate is 25 percent. a. If the company's cost of equity is 15 percent, what is its pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If instead you know that the aftertax cost of debt is 6.2 percent, what is the cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of debt b. Cost of equity % %
Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $200 million and a YTM of 5.8 percent. The company’s market capitalization is $440 million and the required return on equity is 11 percent. Joe’s currently has debt outstanding with a market value of $33.5 million. The EBIT for Joe’s next year is projected to be $13 million. EBIT is expected to grow at 8 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 7 percent, 13 percent, and 6 percent, respectively. Joe’s has 2.15 million shares outstanding and the tax rate for both companies is 21 percent. a.What is the maximum share price that Happy Times should be willing to pay for…
Refi Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm’s debt-equity ratio is expected to rise from 35 percent to 50 percent. The firm currently has $3.1 million worth of debt outstanding. The cost of this debt is 8 percent per year. The firm expects to have an EBIT of $1.3 million per year in perpetuity and pays no taxes. a. What is the market value of the firm before and after the repurchase announcement? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the expected return on the firm’s equity before the announcement of the stock repurchase plan? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the expected return on the equity of an otherwise identical all-equity firm? (Do not round intermediate calculations and…
The Morrit Corporation has $450,000 of debt outstanding, and it pays an interest rate of 11% annually. Morrit's annual sales are $3 million, its average tax rate is 25%, and its net profit margin on sales is 5%. If the company does not maintain a TIE ratio of at least 3 to 1, then its bank will refuse to renew the loan, and bankruptcy will result. What is Morrit's TIE ratio? Do not round intermediate calculations. Round your answer to two decimal places.
The Nelson Company has $1,137,500 in current assets and $455,000 in current liabilities. Its initial inventory level is $310,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 1.8? Do not round intermediate calculations. Round your answer to the nearest dollar. $ What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Do not round intermediate calculations. Round your answer to two decimal places.
Payne Products had $2.4 million in sales revenues in the most recent year and expects sales growth to be 25% this year. Payne would like to determine the effect of various current assets policies on its financial performance. Payne has $2 million of fixed assets and intends to keep its debt ratio at its historical level of 60%. Payne's debt interest rate is currently 10%. You are to evaluate three different current asset policies: (1) a restricted policy in which current assets are 45% of projected sales, (2) a moderate policy with 50% of sales tied up in current assets, and (3) a relaxed policy requiring current assets of 60% of sales. Earnings before interest and taxes are expected to be 14% of sales. Payne's tax rate is 35%, a. What is the expected return on equity under each current asset level? Round your answers to two decimal places. Tight policy % 76.77 Moderate policy Relaxed policy 9.04 5.05 1% b. In this problem, we have assumed that the level of expected sales is…
(Financing decisions) Brussels Electronics, Inc, has total assets of $64 million and total debt of $45 million. The company also has operating profits of $23 millions with interest expenses of $7 million. a. What is Brussels Electronic's debt ratio? b. What is Brussels Electronic's time interest earned? c. Based on the information above, would you recommend to Brussels Electron-ics's management that the firm is in a strong enough position to assume more debt and increase interest expense to $9 million?

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