Fundamentals of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259722615
Author: Richard A Brealey, Stewart C Myers, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 4, Problem 1QP
Market Value Added. Here is a simplified
Locust has 657 million shares outstanding with a market price of $83 a share.
- a. Calculate the company’s market value added.
- b. Calculate the market-to-book ratio.
- c. How much value has the company created for its shareholders?
a.
Expert Solution
Summary Introduction
To calculate: The added market value.
Explanation of Solution
Computation of the market value added:
Hence, the market value added is $36.999.
b.
Expert Solution
Summary Introduction
To compute: The market to book ratio.
Explanation of Solution
Computation of the market to book ratio:
Hence, the market to book ratio is 3.11.
c.
Expert Solution
Summary Introduction
To discuss: The value created by the company to their shareholders.
Explanation of Solution
The company has maximized the value of the investment in equity by 311%.
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Select one company of the 30 companies that make up the Dow Jones Industrial Average (DJIA).
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Using the Du Pont method, evaluate the effects of the following relationships for the Butters Corporation. a. Butters Corporation has a profit margin of 5 percent and its return on assets (investment) is 22.5 percent. What is its assets turnover? (Round your answer to 2 decimal places.) b. If the Butters Corporation has a debt-to-total-assets ratio of 55.00 percent, what would the firm's return on equity be? (Input your answer as a percent rounded to 2 decimal places.) c. What would happen to return on equity if the debt-to-total-assets ratio decreased to 50.00 percent? (Input your answer as a percent rounded to 2 decimal places.)
Using the DuPont method, evaluate the effects of the following relationships for the Butters Corporation.
a. Butters Corporation has a profit margin of 5.5 percent and its return on assets (investment) is 15.5 percent. What is its assets
turnover?
Note: Round your answer to 2 decimal places.
Assets turnover ratio
b. If the Butters Corporation has a debt-to-total-assets ratio of 25.00 percent, what would the firm's return on equity be?
Note: Input your answer as a percent rounded to 2 decimal places.
Return on equity
%
Return on equity
times
c. What would happen to return on equity if the debt-to-total-assets ratio decreased to 20.00 percent?
Note: Input your answer as a percent rounded to 2 decimal places.
$
Chapter 4 Solutions
Fundamentals of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 4 - Market Value Added. Here is a simplified balance...Ch. 4 - Market Value Added. Suppose the broad stock market...Ch. 4 - Measuring Performance. Here are simplified...Ch. 4 - Measuring Performance. Recalculate Home Depot’s...Ch. 4 - Economic Value Added. EVA will be positive...Ch. 4 - Prob. 6QPCh. 4 - Financial Ratios. Here are simplified financial...Ch. 4 - Financial Ratios. Consider this simplified balance...Ch. 4 - Receivables. Chik’s Chickens has accounts...Ch. 4 - Inventory. Salad Daze maintains an inventory of...
Ch. 4 - Times Interest Earned. In the past year, TVG had...Ch. 4 - Leverage Ratios. Lever Age pays an 8% rate of...Ch. 4 - Prob. 13QPCh. 4 - Prob. 14QPCh. 4 - Inventory Turnover.
If a firm’s inventory level of...Ch. 4 - Leverage. A firm has a long-term debt–equity ratio...Ch. 4 - Leverage Ratios. A firm has a debt-to-equity ratio...Ch. 4 - Liquidity Ratios. A firm uses $1 million in cash...Ch. 4 - Prob. 19QPCh. 4 - Prob. 20QPCh. 4 - Prob. 21QPCh. 4 - Du Pont Analysis. Last year Electric Autos had...Ch. 4 - Du Pont Analysis. Torrid Romance Publishers has...Ch. 4 - Du Pont Analysis. Keller Cosmetics maintains an...Ch. 4 - Interpreting Financial Ratios. CFA Corp. has a...Ch. 4 - Using Financial Ratios. For each category of...
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