Question
In: Finance
Build a two-variable table showing the value of a company whose after-tax profit is $1,000 for...
Build a two-variable table showing the value of a company whose after-tax profit is $1,000 for different values of g and ROIC. Assume r, the discount rate, is 10%.
ROIC (horizontal axis): between 6% and 16% (increments of 2%) g (vertical axis): between 0 and 8% (increments of 2%)
Use Excel’s Data Table function in the Data/What-if Analysis tab
Questions:
1. What do you notice when g increases? Explain.
2. What happens when r = ROIC? Why is that so?
Solutions
Expert Solution
1) It is seen that as g increases the value of the firm decreases when ROIC is below the discount rate, while the value increases when ROIC is greater than the discount rate . So any situation when ROIC is less than the discount rate is value destroying for the company while it is value creating once the ROIC> WACC
2)
When r = ROIC =10% , we find that the value of the company remains constant irrespective of the growth rate of the company. This is because, the value for a company comes only when the returns exceed the cost and when it is equal to the cost, there is indifference in the value of the firm.
Calculations
jeff jeffy answered 5 months agoRelated Solutions
1. The ________________________ is a variable whose value depends on the value of another variable. 2....
1. The ________________________ is a variable whose value
depends on the value of another variable.
2. Graphically, the ______________ is the point at which the
cost line intercepts the cost (vertical) axis.
3. An advantage of the high-low method is that it
___________.
4. The percentage of variability in the dependent variable
explained by an independent variable is called the
____________________________________.
5. The spreadsheet regression program supplies more than the
estimates of the coefficients; it also provides information that
can...
Cornerstone Exercise 16.4 (Algorithmic) After-Tax Profit Targets Olivian Company wants to earn $600,000 in net (after-tax)...
Cornerstone Exercise 16.4 (Algorithmic)
After-Tax Profit Targets
Olivian Company wants to earn $600,000 in net (after-tax) income
next year. Its product is priced at $400 per unit. Product costs
include:
Direct materials
$120.00
Direct labor
$88.00
Variable overhead
$20.00
Total fixed factory overhead
$405,000
Variable selling expense is $16 per unit; fixed selling and
administrative expense totals $255,000. Olivian has a tax rate of
40 percent
Required:
1. Calculate the before-tax profit needed to
achieve an after-tax target of $600,000....
Cornerstone Exercise 16.4 (Algorithmic) After-Tax Profit Targets Olivian Company wants to earn $300,000 in net (after-tax)...
Cornerstone Exercise 16.4 (Algorithmic)
After-Tax Profit Targets
Olivian Company wants to earn $300,000 in net (after-tax) income
next year. Its product is priced at $300 per unit. Product costs
include:
Direct materials
$90.00
Direct labor
$66.00
Variable overhead
$15.00
Total fixed factory overhead
$420,000
Variable selling expense is $12 per unit; fixed selling and
administrative expense totals $270,000. Olivian has a tax rate of
40 percent.
Required:
1. Calculate the before-tax profit needed to
achieve an after-tax target of $300,000....
After-Tax Profit Targets Olivian Company wants to earn $300,000 in net (after-tax) income next year. Its...
After-Tax Profit Targets
Olivian Company wants to earn $300,000 in net (after-tax) income
next year. Its product is priced at $400 per unit. Product costs
include:
Direct materials
$120.00
Direct labor
$88.00
Variable overhead
$20.00
Total fixed factory overhead
$450,000
Variable selling expense is $16 per unit; fixed selling and
administrative expense totals $300,000. Olivian has a tax rate of
40 percent.
Required:
1. Calculate the before-tax profit needed to
achieve an after-tax target of $300,000.
$
2. Calculate the...
After-Tax Profit Targets Olivian Company wants to earn $300,000 in net (after-tax) income next year. Its...
After-Tax Profit
Targets Olivian Company wants to earn $300,000 in net
(after-tax) income next year. Its product is priced at $250 per
unit.
Product costs include:
Direct materials $75.00
Direct labor $55.00
Variable overhead $12.50
Total fixed factory overhead $445,000
Variable selling expense is $10 per unit; fixed selling and
administrative expense totals $295,000. Olivian has a tax rate of
40 percent.
Required: 1. Calculate the before-tax profit needed to achieve
an after-tax target of $300,000. $
2. Calculate the...
After-Tax Profit Targets Olivian Company wants to earn $360,000 in net (after-tax) income next year. Its...
After-Tax Profit Targets
Olivian Company wants to earn $360,000 in net (after-tax) income
next year. Its product is priced at $350 per unit. Product costs
include:
Direct materials
$105.00
Direct labor
$77.00
Variable overhead
$17.50
Total fixed factory overhead
$410,000
Variable selling expense is $14 per unit; fixed selling and
administrative expense totals $260,000. Olivian has a tax rate of
40 percent.
Required:
1. Calculate the before-tax profit needed to
achieve an after-tax target of $360,000.
$
2. Calculate the...
After-Tax Profit Targets Olivian Company wants to earn $420,000 in net (after-tax) income next year. Its...
After-Tax Profit Targets Olivian Company wants to earn $420,000
in net (after-tax) income next year. Its product is priced at $275
per unit. Product costs include: Direct materials $90 Direct labor
$65 Variable overhead $16 Total fixed factory overhead $440,000
Variable selling expense is $14 per unit; fixed selling and
administrative expense totals $290,000. Olivian has a tax rate of
40 percent. Required:
1. Calculate the before-tax profit needed to achieve an
after-tax target of $420,000.
2. Calculate the number...
For the year ended 31 December 2016 a company earned a profit after interest and tax...
For the year ended 31 December 2016 a company earned a profit
after interest and tax of
£480,000. The company’s share price is £12 per share. The following
are extracts from the
company’s Statement of financial position at 31 December
2016:
Ordinary share capital (50p shares) £200,000
Retained earnings £380,000
Revaluation reserve £80,000
Long-term 10% Bank loan £48,000
The company’s price earnings (PE) number and return on equity for
the period were:
Compute and interpret the net-operating profit after tax (NOPAT) of the company for 2018 and 201
Balance sheet
Items
2019
2018
Cash
8,313
11,604
Marketable securities
696
618
Account receivables
23,795
30,563
Inventory
1,619
1,682
Prepaid expenses
3,997
4,678
Net Fixed Assets
96,457
68,764
Investment in AB Co. stocks
17,309
5,473
Account payables
24,600
21,372
Wages and salaries payable
13,101
16,855
Bond payable (10 yrs.)
54,102
35,605
Notes payable (3 yrs.)
39,398
32,621
Total shareholders’ Equity Capital
20,985
16,929
B. Income statement
Items
2019
2018
Revenues
77,147
79,591
Cost of goods sold
40,659
42,655
Salaries...
The approximate after-tax cost of debt for a 20-year, 7 percent, $1,000 par value bond selling...
The approximate after-tax cost of debt for a 20-year, 7 percent,
$1,000 par value bond selling at $960 (assume a marginal tax rate
of 40 percent) is
Select one:
a. 4.41 percent.
b. 5.15 percent.
c. 7 percent.
d. 7.35 percent.
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- What is the purpose of sodium hydrosulfite addition? What is the purpose of potassium ferricyanide in...
- A 19.0-kg cannonball is fired from a cannon with muzzle speed of 1 150 m/s at...
- Please show all work: Represent the number (+46.5) as a 32 bit floating-point number using the...
- Two clever kids from Kentucky use a huge spring with spring constant k= 890 N/m to...
- java euclidean algorithm (1) Let a = 35, and b = -49. Please compute GCD(a, b)....
- Please show all work: Determine the 2’s complement equivalent of the following numbers in 8-bit format...
- c++ class Topics Branches if statement if/else statement Description Write a program that will determine whether...
ADVERTISEMENT