EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103164535
Author: DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 14.2, Problem 2CC
What is a market value
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Students have asked these similar questions
High Hand Nursery has total assests of $900,000, current liabilities of $202,000, and long-term liabilities of $104,000. There is $90,000 in preferred stock outstanding. Twenty thousand shares of common stock have been issued.
a. Compute book value (net worth) per share.
b. If there is $40,000 in earnings available to common stockholders for dividends, and the firm's stock has a P/E of 22 times earnings per share, what is the current price of the stock?
c. What is the ratio of market value per share to book value per share?
Need the WACC %
WACC and Optimal Capital Structure
F. Pierce Products Inc. is considering changing its capital structure. F. Pierce currently has no debt and no preferred stock, but it would like to add some debt to take advantage of the tax shield. Its investment banker has indicated that the pre-tax cost of debt under various possible capital structures would be as follows:
Market Debt-to-Value Ratio (wd)
Market Equity-to-Value Ratio (ws)
Market Debt-toEquity Ratio (D/S)
Before-Tax Cost ofDebt (rd)
0.0
1.0
0.00
6.0
%
0.10
0.90
0.1111
6.4
0.20
0.80
0.2500
7.0
0.30
0.70
0.4286
8.2
0.40
0.60
0.6667
10.0
F. Pierce uses the CAPM to estimate its cost of common equity, rs, and at the time of the analaysis the risk-free rate is 5%, the market risk premium is 7%, and the company's tax rate is 25%. F. Pierce estimates that its beta now (which is "unlevered" because it currently has no debt) is 1.4. Based on this information, what…
Ned's Co. has an average collection period of 45 days and an operating cycle of 130 days. It has a policy of keeping at least $10 on hand as a minimum cash balance, and has a beginning cash balance for the first quarter of $20. Beginning receivables for the quarter amount to $35. Sales for the first and second quarters are expected to be $110 and $125, respectively, while purchases amount to 80% of the next quarter's forecast sales. The accounts payable period is 90 days. What are the cash disbursements for the first quarter?
Question 4 options:
$92
$88
$76
$100
$110
Chapter 14 Solutions
EBK CORPORATE FINANCE
Ch. 14.1 - How does the risk and cost of capital of levered...Ch. 14.2 - Why are investors indifferent to the firms capital...Ch. 14.2 - What is a market value balance sheet?Ch. 14.2 - In a perfect capital market, how will a firms...Ch. 14.3 - How do we compute the weighted average cost of...Ch. 14.3 - With perfect capital markets, as a firm increases...Ch. 14.4 - If a change in leverage raises a firm's earnings...Ch. 14.4 - True or False: When a firm issues equity, it...Ch. 14.5 - Consider the questions facing Dan Harris, CFO of...Ch. 14.5 - Prob. 2CC
Ch. 14 - Consider a project with free cash flows in one...Ch. 14 - You are an entrepreneur starting a biotechnology...Ch. 14 - Acort Industries owns assets that will have an 80%...Ch. 14 - Wolfrum Technology (WT) has no debt. Its assets...Ch. 14 - Suppose there are no taxes. Firm ABC has no debt,...Ch. 14 - Suppose Alpha Industries and Omega Technology have...Ch. 14 - Prob. 7PCh. 14 - Prob. 8PCh. 14 - Zetatron is an all-equity firm with 100 million...Ch. 14 - Explain what is wrong with the following argument:...Ch. 14 - Consider the entrepreneur described in Section...Ch. 14 - Hardmon Enterprises is currently an all-equity...Ch. 14 - Suppose Visa Inc. (V) has no debt and an equity...Ch. 14 - Prob. 14PCh. 14 - Prob. 15PCh. 14 - Hartford Mining has 50 million shares that are...Ch. 14 - Mercer Corp. has 10 million shares outstanding and...Ch. 14 - In mid-2015 Qualcomm Inc. had 11 billion in debt,...Ch. 14 - Prob. 19PCh. 14 - Prob. 20PCh. 14 - Yerba Industries is an all-equity firm whose stock...Ch. 14 - Prob. 22PCh. 14 - Prob. 23PCh. 14 - Prob. 24P
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- Liberal credit terms for customers is associated with a restrictive short-term financial policy. Question 3 options: True Falsearrow_forwardAn accounts payable period decrease would increase the length of a firm's cash cycle. Consider each in isolation. Question 6 options: True Falsearrow_forwardWhich of the following is the best definition of cash budget? Question 10 options: Costs that rise with increases in the level of investment in current assets. A forecast of cash receipts and disbursements for the next planning period. A secured short-term loan that involves either the assignment or factoring of the receivable. The time between sale of inventory and collection of the receivable. The time between receipt of inventory and payment for it.arrow_forward
- Short-term financial decisions are typically defined to include cash inflows and outflows that occur within __ year(s) or less. Question 9 options: Four Two Three Five Onearrow_forwardA national firm has sales of $575,000 and cost of goods sold of $368,000. At the beginning of the year, the inventory was $42,000. At the end of the year, the inventory balance was $45,000. What is the inventory turnover rate? Question 8 options: 8.46 times 13.22 times 43.14 times 12.78 times 28.56 timesarrow_forwardThe formula (Cash cycle + accounts payable period) correctly defines the operating cycle. Question 7 options: False Truearrow_forward
- An accounts payable period decrease would increase the length of a firm's cash cycle. Consider each in isolation. Question 6 options: True Falsearrow_forwardWhich of the following issues is/are NOT considered a part of short-term finance? Question 5 options: The amount of credit that should be extended to customers The firm determining whether to issue commercial paper or obtain a bank loan The amount of the firms current income that should be paid out as dividends The amount the firm should borrow short-term A reasonable level of cash for the firm to maintainarrow_forwardLiberal credit terms for customers is associated with a restrictive short-term financial policy. Question 3 options: True Falsearrow_forward
- An increase in fixed assets is a source of cash. Question 2 options: True Falsearrow_forwardIf the initial current ratio for a firm is greater than one, then using cash to purchase marketable securities will decrease net working capital. True or falsearrow_forwardwhat is going to be the value of American put option that expires in one year modeled with a binomial tree of 3 months step with year to expiry? assume the underlying is oil future with RF of 5% and vol of oil is 30%. Strike is 70 and price is 60 of oil. 13.68 13.44 13.01arrow_forward
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