Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 19, Problem 6P
Summary Introduction
To determine: The working capital requirement.
Introduction:
The difference between the net current assets and net current liability is termed as net working capital. The amount of funds or sum of current assets required to cover the operating expenses is termed as working capital requirements.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Forecast KMS's free cash flow, assuming KMS's market share will increase by 0.23% per year; investment, financing, and depreciation will be adjusted accordingly; and working capital will be as given in the table
The Tax Cuts and Jobs Act of 2017 temporarily allows 100% bonus depreciation (effectively expensing capital expenditures). However, we will still include depreciation forecasting in this chapter and in these problems in anticipation of the return of standard depreciation practices
during your career.
The free cash flow in 2019 will be $
The free cash flow in 2020 will be $
The free cash flow in 2021 will be $
The free cash flow in 2022 will be $
The free cash flow in 2023 will be $
The free cash flow in 2024 will be $
thousand. (Round to the nearest integer.)
thousand. (Round to the nearest integer.)
thousand. (Round to the nearest integer.)
thousand. (Round to the nearest integer.)
thousand. (Round to the nearest integer.)
thousand. (Round to the nearest integer.)
Data table…
ANB has a project with $185211 in depreciation expense each year, no changes in net working capital each year, and initial capital expenditures of $461696. The project is expected to last for two years. If the discount rate is 0.080, what constant level of unlevered net income results in a NPV of 0 for this project?
Woc inc. wants to increase its free cash flow by PIBO milion during the coming year, which should
result in a higher EVA and stock price. The CO has made these projections for the upcoming year:
• CBIT Is projected to equal PRSO millon
* Gross capital expenditures are enpected to total to P60 milien versus depreciation of P120
millon, so its net capital expenditures should total P240 million.
• The tan rate is 0N.
• There will be no changes in cash or marketable securitien, nor willthere be any changes in notes
payable or accruals
what increase in net working capital in milions) would enable the firm ta meet its target increase in
O P 72
O P130
O P156
O P108
O P 90
Chapter 19 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 19.1 - Prob. 1CCCh. 19.1 - Prob. 2CCCh. 19.2 - Prob. 1CCCh. 19.2 - Prob. 2CCCh. 19.3 - What is a pro forma income statement?Ch. 19.3 - Prob. 2CCCh. 19.4 - Prob. 1CCCh. 19.4 - Prob. 2CCCh. 19.5 - Prob. 1CCCh. 19.5 - Prob. 2CC
Ch. 19.6 - Prob. 1CCCh. 19.6 - Prob. 2CCCh. 19 - Prob. 1PCh. 19 - Prob. 2PCh. 19 - Prob. 3PCh. 19 - Prob. 4PCh. 19 - Under the assumptions that Idekos market share...Ch. 19 - Prob. 6PCh. 19 - Prob. 7PCh. 19 - Prob. 8PCh. 19 - Prob. 11PCh. 19 - Calculate Idekos unlevered cost of capital when...Ch. 19 - Using the information produced in the income...Ch. 19 - How does the assumption on future improvements in...Ch. 19 - Approximately what expected future long-run growth...Ch. 19 - Prob. 16P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Under the assumption that KMS's market share will increase by 0.22% per year, you determine that the plant will require an expansion in 2015, KMS's current outstanding debt, the interest on the debt, and the interest tax shield are given in the table below. The expansion will cost $21.8 million. Assuming that the financing of the expansion will be delayed accordingly (end of 2015) calculate the projected interest payments and the amount of the projected interest tax shields (assuming that KMS still uses a 10-year bond, interest rates remain the same at 7.1%, and KMS's tax rate is 35%) through 2018. Current values (5000) Outstanding debt before expansion Interest on debt before expansion Interest Tax Shield before expansion 2013 $4,447 $316 $111 2014 $4,447 $316 $111 2015 $4,447 $316 $111 2016 $4,447 $316 $111 The total projected interest payments beginning in 2015 will be $ (Round to the nearest dollar) 2017 $4,447 $316 $111 2018 $4,447 $316 $111arrow_forwardSelected financial information for Omni Consumer Products Inc. is provided in the table. Omni is currently all equity financed, but it is considering a leveraged capital structure, details of which are presented in the Proposed column. Assume that Omni generates perpetual annual EBIT. Assume that all cash flows occur at the end of the year and we are currently at the beginning of a year. The company isn't growing so there are no investments in working capital or fixed assets. Assume that taxes are zero and all of net income is paid out as a dividend. Assume that the debt is perpetual with annual coupons at the rate ko. It will use the borrowed funds to repurchase (and cancel) shares. What will its equity be worth after the recapitalization? Selected Financial Information Omni Consumer Products Inc. Capital Structure Current Proposed EBIT $100,000 $100,000 Debt, D $0 $428,571.43 Cost of Debt, ko 5% Cost of Equity, ku 7%arrow_forwardYou are evaluating a project that will require an investment of $18 million that will be depreciated over a period of 18 years. You are concerned that the corporate tax rate will increase during the life of the project. a. Would this increase the accounting break-even point? b. Would it increase the NPV break-even point? a. Would this increase the accounting break-even point? b. Would it increase the NPV break-even point?arrow_forward
- I'm studying Michael Mauboussin's method for calculating the fair P/E ratio of a company using NOPAT growth, ROIIC (Return on Invested Incremental Capital), and the cost of capital. Here's an example provided: NOPAT Growth: 10% ROIIC: 20% Cost of Capital: 6.7% Fair P/E Ratio: 32.3 Cash Flow period: 15 years However, the pic provided doesn't show the specific steps for calculating the fair P/E ratio of 32.3. It summarizes the method but skips the detailed process. Could you please guide me through the steps to derive this result? u can also use a DCF (Discounted Cash Flow) approach if it's neededarrow_forwardA company estimates that it will have $402,330 in sales and $90,850 in operating costs annually. Assume a tax rate of 32.97% and a CCA rate of 27.00%. If the undepreciated capital cost (UCC) balance at the start of the year is $355,010, what is the year's project cash flows? Assume no change in non-cash working capital and no purchase or sale of long-term assets during the year. Options $222,359 $228,368 $234,378 $240,388 $246,397arrow_forwardUse the following after-tax cash flows for project A and B to answer the next question: (Numbers in parentheses are negative cash flows) These two projects are independent. Year Cash Flow of A Cash Flow of B 0 ($2900) ($500) 1 $980 $100 2 $990 $100 3 $960 $800 4 $920 $100 5 ($100) ($100) What is the approximate NPV of project A if the required rate of return is 9.5%? $128 $136 $28 $196 $163arrow_forward
- PCA Ltd is a listed firm and considering to invest in a new project. The new project would be having the same business risk and the same leverage as that of the company. Please consider the information below and answer the following question assuming that the CAPM holds. Relevant information Risk Free Rate Historical standard deviation of the market Market Risk Premium 5.00% 10.00% 10.00% Last year market return Tax Rate of PCA Ltd 25.60% 30.00% Cost of debt of PCA Ltd 10.00% Beta of PCA Ltd. Value of Long Term Debt of PCA Ltd No. of shares outstanding for PCA Ltd Book value per share of shares of PCA Ltd Average per share price of shares of PCA Ltd 1.5 15,00,00,000 1,00,00,000 10 17.5arrow_forwardPlease only answer PART F d) Suppose the Internal Rate of Return (IRR) of this investment opportunity is 15%. Based on this information alone, should Limitless Ltd. make the investment? Why?Would this decision be consistent with that from B? Explain your reasoning.e) Suppose that, instead of paying the initial £500,000 now, Limitless Ltd. decides to pay it in equal instalments over the next 10 years. How much would the companyneed to pay each year to make all these payments equivalent to £500,000 today? f) Now assume that an alternative project would generate immediate (time zero) net profits of £500,000 upfront, but after that, it would result in annual losses of£120,000 over the next five years, and then the annual losses of £60,000 over the following five years. The cost of capital is 12% and the IRR is 15%. Should you start this project? Explain your reasoning. Would you make the same decision based on NPV and IRR? Why?arrow_forwardThe following is a four-year forecast for Torino Marine. Year Free cash flow ($ millions) a. Fair market value b. Fair market value per share 2022 -61 $ a. Estimate the fair market value of Torino Marine at the end of 2021. Assume that after 2025, earnings before interest and tax will remain constant at $200 million, depreciation will equal capital expenditures in each year, and working capital will not change. Torino Marine's weighted-average cost of capital is 15 percent and its tax rate is 30 percent. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place. 6.89 2023 82 b. Estimate the fair market value per share of Torino Marine's equity at the end of 2021 if the company has 46 million shares outstanding and the market value of its interest-bearing liabilities on the valuation date equals $360 million. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. 2024 99 million 2025 121arrow_forward
- Pls help correctly thanks.arrow_forwardAn investment project that requires a present investment of P210,000 will have a cash inflows of “R” pesos each year for the next five years. The project will terminate in five years. Consider the following statements (ignore income tax considerations): I. If “R” is less than P42,000, the payback period exceeds the life of the project.II. If “R” is greater than P42,000, the payback period exceeds the life of the project.III. If “R” equals P42,000, the payback period equals the life of the project. A. II and III B. I and II C. I and III D. All of the statementsarrow_forwardWavy Inc is examining a project that requires an initial investment of -10 million today. This will be followed by several years of positive incremental after-tax cash flows. However, during the last year of the project's life Wavy expects that the incremental cash flow will again be negative. By which method should Wavy determine whether or not to invest? A) Both NPV or IRR are fine, as they must arrive at same investment decision B) IRR, because there will be no NPV solution in this case C) Neither NPV or IRR are useful in this situation D) NPV, since this project will have two IRRsarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Financial leverage explained; Author: The Finance story teller;https://www.youtube.com/watch?v=GESzfA9odgE;License: Standard YouTube License, CC-BY