EBK FUNDAMENTALS OF CORPORATE FINANCE
9th Edition
ISBN: 9781260049237
Author: BREALEY
Publisher: MCGRAW HILL BOOK COMPANY
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
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%.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Select one company of the 30 companies that make up the Dow Jones Industrial Average (DJIA).
a. Provide a brief history of the company chosen from the 30 companies of the DJIA.b.Describe the Dividend Discount Model (DDM). Using the DDM value the companyc.Provide a brief description of the Residual Income Model. Using the RIM value, the companyd.Describe the Free Cash Flow Model (FCF). Using the FCF value the companye. Describe the P/E ratio for the company and determine the expected price of the company using Earnings, Cash Flow and Salesf.summary of the detailed fundamental analysis for the company, provide a current status of the company and then explain if you would invest in the company at the current price. Explain why you made the investment decision and at what price range you would invest money in this company.
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
EBK FUNDAMENTALS OF CORPORATE FINANCE
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...
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
- 5. Profitability ratios Profitability ratios help in the analysis of the combined impact of liquidity ratios, asset management ratios, and debt management ratios on the operating performance of a firm. Your boss has asked you to calculate the profitability ratios of Diusitech Inc. and make comments on its second-year performance as compared with its first-year performance. The following shows Diusitech Inc.'s income statement for the last two years. The company had assets of $4,700 million in the first year and $7,518 million in the second year. Common equity was equal to $2,500 million in the first year, and the company distributed 100% of its earnings out as dividends during the first and the second years. In addition, the firm did not issue new stock during either year. Diusitech Inc. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 2,540 2,000 1,610 1,495 127 80 1,737 803 80 723 181 542 Net Sales Operating costs except depreciation and…arrow_forwardI need help to determine the following; 6. For P & B Manufacturing to assess its market performance, I need help to calculate the earnings per share AND the dividend payout ratio (the par value of the company’s common stock is $10 per share). Include calculations and round answers to 2 decimal places.arrow_forwardAnalyze and compare Bank of America and Wells Fargo Bank of America Corporation (BAC) and Wells Fargo Company (WFC) are two large financial services companies. The following data (in millions) were taken from a recent years financial statements for both companies: a. Compute the earnings per share for both companies. Round to the nearest cent. a. Which company appears to be more profitable on an earnings-per-share basis? b. Which company would you expect to have the larger quoted market price?arrow_forward
- Albion Inc. provided the following information for its most recent year of operations. The tax rate is 40%. Required: 1. Compute the following: (a) return on sales, (b) return on assets, (c) return on stockholders equity, (d) earnings per share, (e) price-earnings ratio, (f) dividend yield, and (g) dividend payout ratio. 2. CONCEPTUAL CONNECTION If you were considering purchasing stock in Albion, which of the above ratios would be of most interest to you? Explain.arrow_forwardUsing 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 8.75 percent. What is its assets turnover? Round your answer to 2 decimal places. ______ times B.If the Butters Corporation has a debt-to-total-assets ratio of 65.00 percent, what would the firm’s return on equity be? Note: 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 60.00 percent? Input your answer as a percent rounded to 2 decimal places.arrow_forwardAssume you are given the following relationships for the Warner Corporation: Sales / Total assets 1.2× Return on assets (ROA) 3.95% Return on equity (ROE) 7.70%Calculate Warner’s profit margin. a. 4.74% b. 9.24% c. 3.29% d. 1.95% e. 6.42%arrow_forward
- You are given the financial information for the Unic Company: Earnings Before Interest and Tax (EBIT) = $126.58 Corporate tax rate (TC) = 0.21 Debt (D) = $500 Unlevered cost of capital (RU) = 0.20 The cost of debt capital is 10 percent. Question: Determine the value of Unic Company equity? Determine the cost of equity capital for Unic Company? Determine the WACC for Unic Company?arrow_forwardThe discounted cash flow model and the corporate valuation model are the most widely used valuation techniques. Often these valuations are accompanied by market multiple analysis, which is based on the fundamental concept that sinar assets should have simlar values. Carlson Co, is a privately owned firm with few investors. Investors forecast their eamings per share (EPS) to reach $3 this coming year The average price-to-earnings (P/E) ratio for similar companies in the S&P 500 is 11. The estimated intrinsic value of Carlson Co.'s stock will be Market multiple analysis is also used to calculate the value of a company, which is further used to calculate the intrinsic vakre per share of the fim Suppose you have the information given in the following table for Company X. EBITDA Total value of equity Total firm value per share. Year 1 Year 2 $10,680 $12,375 $121,500 $112,500 $182,250 $202,500arrow_forwardCalculate the profitability ratios of Dernham Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places. Ratio Operating margin Value Year 2 Year 1 61.54% Profit margin 44.39% Return on total assets 17.09% Return on common equity 32.13% Basic earning power 22.22% Decision makers and analysts look deeply into profitability ratios to identify trends in a company's profitability. Profitability ratios give insights into both the survivability of a company and the benefits that shareholders receive. Identify which of the following statements are true about profitability ratios. Check all that apply. A higher operating margin than the industry average indicates either lower operating costs, higher product pricing, or both. If a company's operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes. An increase in the return on assets ratio implies an increase in the assets a firm owns. If a…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Century 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:Cengage
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Century 21 Accounting Multicolumn Journal
Accounting
ISBN:9781337679503
Author:Gilbertson
Publisher:Cengage
Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY