Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 8SP
a)
Summary Introduction
To determine: The EBIT indifference level associated with the two financing proposals.
b)
Summary Introduction
To determine: The income statement and prove EPS will be same for two plan.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
An entrepreneur wants to set up a new super -
speciality hospital with 300 beds offering oncologyand
dialysis. She wants to raise $10 million for the set-up
and hiring.Estimate for each round the funding they will
need and how many rounds. Also make a co-founder
profile, assuming you are starting the business and
assessing both of your competencies.Estimate the
funding required in Seed Round Angel Round Venture
Capital RoundsThe following content must be included
in your submission:1. Reason for capital needed. (Please
be very specific)2. Budgeted expenditure with the
amount raised.3. Explain the significance of Venture
Capital Funding.4. Explain the reason for choosing a
particular investor and co-founder, explaining
whatthey bring to the company apart from capital, i.e.,
expertise, connections etc.5. What conclusion can be
formed using the above analysis about the project?
Luma, a startup company, provides a platform for people to host virtual classes,
record live shows, educate, and find their communities via Zoom. Suppose a
founder owns 100% of the startup and currently has 0.5 million shares. The
founder plans to raise $3 million from Venick (a venture capital firm investing in
technology and healthcare companies) in Series A financing with the pre-money
valuation of $10 million. An option pool of 15% is reserved for future employees.
Given the information, find the Price/shares paid by Venrock following
capitalization table AFTER series A.
$2.7
$7.2
$12.5
O $16.1
Recently, you were contacted by a friend who was
thinking of signing a Joint Venture agreement to
fund a new shopping center to be built in
Melbourne. Along with several other investors,
each party will invest $25,000 to the venture in
order to pay for the building and construction work.
Your friend knows several of the other investors and
is looking forward to working closely with the other
investors on this new project, however your friend
feels very strongly about keeping his business
affairs completely separate from those of other
investors.
Required: What advice and/ or warning would you
give your friend before signing the Joint Venture
contract? You must refer to legislation and/ or case
law and clearly define all business structures that
may impact on the advice you give your friend.
Chapter 12 Solutions
Foundations Of Finance
Ch. 12 - Prob. 1RQCh. 12 - Prob. 3RQCh. 12 - Prob. 4RQCh. 12 - Prob. 5RQCh. 12 - Prob. 1SPCh. 12 - Prob. 2SPCh. 12 - Prob. 3SPCh. 12 - Prob. 4SPCh. 12 - Prob. 5SPCh. 12 - (Capital structure theory) Match each of the...
Ch. 12 - (Capital structure theory) Which of the following...Ch. 12 - Prob. 8SPCh. 12 - Prob. 9SPCh. 12 - (Assessing leverage use) Financial data for three...Ch. 12 - Prob. 1.1MCCh. 12 - Prob. 1.2MCCh. 12 - Prob. 1.3MCCh. 12 - Prob. 1.4MCCh. 12 - Prob. 2.1MCCh. 12 - Prob. 2.2MCCh. 12 - Prob. 2.3MCCh. 12 - Prob. 3.1MCCh. 12 - Prob. 3.2MCCh. 12 - Prob. 3.3MC
Knowledge Booster
Similar questions
- need help.arrow_forwardThree recent computer-science graduates are forming a company to write and distribute software for various personal computers. Initially, the company will operate in Eastern Australia. Twelve serious prospects for retail outlets have already been identified and committed to the firm. The firm’s software products have been tested and displayed at several trade shows and computer fairs in the perceived operating region. All that is lacking is adequate financing to continue with the project . A small group of private investors is interested in financing the company. Two financing proposals are being evaluated. (A 34% tax rate is appropriate for this analysis.) 1) Plan A is an all-ordinary share capital structure. ‒ $2m dollars would be raised by selling shares at $10 each. 2) Plan B would involve the use of financial leverage. ‒ $1m dollars would be raised selling bonds with an effective interest rate of 11% per annum. ‒ The remaining $1m would be raised by selling shares at the $10 price…arrow_forwardCreate notes for a financial proposal to seek funding for your new uber business venture in st.kitts and nevis. 1. Business Market – Size of the market, the competition, channels of distribution 2. Financing requested – How much money will be required to fund the start-up? In whatcurrency? Provide a justification for the amount requested.3. Source of Funding – From where will the business seek funding, commercial bank, venturecapitalists or any other? Provide a detailed justification for the choice.4. Management Structure – Provide an Organizational Chart, identify key personnel, theirrespective roles and the number of employees.arrow_forward
- Explain well with proper step by step and type The Answer.arrow_forwardAhmed for Mujeeb Leasing for several years. Muscat Leasing is a company that leases high-tech medical equipment to hospitals. Ahmed for Mujeeb have decided that, with their financial expertise, they might start their own company to provide consulting services to individuals interested in leasing equipment. One form of organization they are considering is a partnership. If they start a partnership, each individual plan to contribute OMR50,000 in cash. In addition, Ahmed has a used computer that originally cost OMR370, which he intends to invest in the partnership. The computer has a present market value of OMR150.Although both Ahmed for Mujeeb are financial wizards, they do not know a great deal about how a partnership operates. As a result, they have come to you for advice. What type of document is needed for a partnership, and what should this document contain?arrow_forwardThree of your former classmates from the University of London have started a businesssupplying custom-made construction materials (like pre-fabricated bathroom units) to construction companies and student housing properties. They have offered you a chance to invest in their company as a shareholder. What type of questions would you need to ask them to help assess the risk of this investment opportunity?The topics covered by your questions should include: (Select the best choice below.)A.Profitability (what amount of profits have they been making).B.Dividend payout (how much of the profit is being paid out as dividends over the past years)C.How robust is their business plan?D.Capital structure (financial strength of the business can be assessed by the capital structure and the quality of assets)E.Governance structure (the risk can be assessed by understanding governance structure of the business)F.All of the above.arrow_forward
- Mohan has a great idea to develop a new social media application called BetchaCoin. The development cost is estimated at $15 million. It could prove as valuable as BitCoin. Required: Explain to him which business structure would likely be most suitable for his proposed business. Your answer should refer to relevant legal considerations.arrow_forwardExplain the market of loanable funds and your role as a A. borrower when you buy your next vehicle AND B. saver after selling your first home and profiting $100,000. • You are opening your own small business. You will need the capital to begin your business plan. Utilizing chapter 22 with figure 22.2. consider and explain your timeline of production for your small business.arrow_forwardSuppose that you are appointed as a finance executive of a dairy product Company of UAE. How you will design the capital structure of the company if company needs to raise capital from $200,000 to $8,00,000 with the mix of Equity and Debt. Determine the EPS in each case and evaluate the best possible actions for the company. During the production process if company needs to raise $ 300,000 more capital then which option suits to company? Through Debt or Equity? Justify your answer in context to the theory of financial intermediation to the mistionarrow_forward
- Xiao and Shiao Jing-jian, newlyweds from Laramie, Wyoming, have decided to begin investing for the future. Xiao is a 7-Eleven store manager, and Shiao is a high-school math teacher. The couple intends to take $2,500 out of their savings for investment purposes and then continue to invest an additional $200 to $400 per month. Both have a moderate investment philosophy and seek some cash dividends as well as price appreciation. Calculate the five-year return on the investment choices in the table below. Current price $28.50 $39.60 Current earnings per share (EPS) $1.90 $2.20 Current quarterly cash dividend $0.16 $0.20 Current P/E ratio 15 18 Projected earnings annual growth rate 25 % 25 % Projected cash dividend growth rate 10 % 10 % (Hint: When making your calculations you should assume at the end of the first year. At the end of the first year the EPS for Running Paws will be $2.38 with a dividend of $0.70, and the EPS for Eagle Packaging will be $2.75…arrow_forwardPatton is considering joining Microtech Enterprises as a partner. The company provides data imaging for a variety of end users. Patton will have to contribute $100,000 of capital upon admission as a partner and will need to decide on a profit-sharing arrangement. Three alternatives are being proposed as follows:Alternative A—Patton will be allocated a salary of $120,000, 10% of average capital after considering withdrawals, and 10% of net income. At the end of each calendar quarter, $30,000 will be distributed to Patton. No additional profits will be allocated to Patton.Alternative B—Patton will be allocated a salary of $96,000, 10% of average capital after considering withdrawals in excess of $60,000, and a bonus of 10% of net income. At the end of the second, third, and fourth calendar quarters, Patton will receive a distribution of $24,000. At the end of the first quarter of the following year, Patton will receive a distribution of $60,000. No additional profits will be allocated to…arrow_forwardSuggest any TWO sources of finance that Lorraine should consider.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College