FUND. OF FINANCIAL MGMT CONCISE (LL)
9th Edition
ISBN: 9781337539319
Author: Brigham
Publisher: CENGAGE L
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Textbook Question
Chapter 13, Problem 11P
RECAPITALIZATION Currently, Forever flowers Inc. has a capital structure consisting of 25% debt and 75% equity. Forever's debt currently has a 7% yield to maturity. The risk-free rate (rRF) is 6%, and the market risk premium (rM - rRF) is 7%. Using the
- a. What is Forever's current WACC?
- b. What is the current beta on Forever's common stock?
- c. What would Forever's beta be if the company had no debt in its capital structure? (That is, what is Forever's unlevered beta, bU?)
Forever's financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity on the company's bonds would rise to 10.5%. The proposed change will have no effect on the company's tax rate.
- d. What would be the company's new cost of equity if it adopted the proposed change in capital structure?
- e. What would be the company's new WACC if it adopted the proposed change in capital structure?
- f. Based on your answer to part e, would you advise Forever to adopt the proposed change in capital structure? Explain.
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PROBLEM 2
On July 1, 2022, LTU Contracting, Inc. purchased a new Peiner SK575 Tower Crane for
a total cost of $875,000. The crane has an estimated useful life of five (5) years. For
financial reporting (book) purposes, the company utilizes straight line depreciation. For
tax purposes, the equipment is depreciated over five years utilizing the 200% declining
balance method.
A. Prepare a table that computes the book and tax depreciation for each year of the
useful life and determine the difference in book value between each method at
the end of each year.
B. On July 1st, 2025, the company is considering selling the crane for $500,000.
Compute what the gain or loss would have been at that time for both book and
tax purposes.
Brightwoodę Furniture provides the following financial data for a
given enod:
Sales
Aount ($) Per Unit ($)
150,000
13
Less Variable E
-
L96,000
13
Contribwaon Margin c
1C
Less Fixed Expenses
$5,000
et Income
125,000
a. What is the company's CM ratio?
b. If quarterly sales increase by $5,200 and there is no change in fixed
expenses, by how much would you expect quarterly net operating
income to increase?
Please give correct answer dont use chatgpt .
if image is blurr or any data is unclear then please comment i will write values , dont give answer without sure that data in image is showing properly.
Chapter 13 Solutions
FUND. OF FINANCIAL MGMT CONCISE (LL)
Ch. 13 - Changes in sales cause changes in profits. Would...Ch. 13 - Would each of the following increase, decrease, or...Ch. 13 - Discuss the following statement: All else equal,...Ch. 13 - Prob. 4QCh. 13 - Which of the following would likely encourage a...Ch. 13 - Prob. 6QCh. 13 - Why is EBIT generally considered independent of...Ch. 13 - Is the debt level that maximizes a firm's expected...Ch. 13 - If a firm goes from zero debt to successively...Ch. 13 - Prob. 10Q
Ch. 13 - Prob. 11QCh. 13 - BREAK-EVEN ANALYSIS A company's fixed operating...Ch. 13 - OPTIMAL CAPITAL STRUCTURE Terrell Trucking Company...Ch. 13 - RISK ANALYSIS a. Given the following information,...Ch. 13 - Prob. 4PCh. 13 - FINANCIAL LEVERAGE EFFECTS Firms HL and LL are...Ch. 13 - Prob. 6PCh. 13 - FINANCIAL LEVERAGE EFFECTS The Neal Company wants...Ch. 13 - HAMADA EQUATION Situational Software Co. (SSC) is...Ch. 13 - RECAPITALIZATION Tartan Industries currently has...Ch. 13 - BREAKEVEN AND OPERATING LEVERAGE a. Given the...Ch. 13 - RECAPITALIZATION Currently, Forever flowers Inc....Ch. 13 - BREAKEVEN AND LEVERAGE Wingler Communications...Ch. 13 - FINANCING ALTERNATIVES The Severn Company plans to...Ch. 13 - WACC AND OPTIMAL CAPITAL STRUCTURE Elliott...Ch. 13 - CAMPUS DELI INC. OPTIMAL CAPITAL STRUCTURE Assume...Ch. 13 - To get an overall picture of each company's...Ch. 13 - Repeat this procedure for the other three...
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