You are given the following information for Smashville, Inc.
Cost of goods sold: | $ | 229,000 | |
Investment income: | $ | 2,500 | |
Net sales: | $ | 374,000 | |
Operating expense: | $ | 82,000 | |
Interest expense: | $ | 7,400 | |
Dividends: | $ | 9,000 | |
Tax rate: | 30 | % | |
Current liabilities: | $ | 18,000 |
Cash: | $ | 21,000 |
Long-term debt: | $ | 23,000 |
Other assets: | $ | 41,000 |
Fixed assets: | $ | 166,000 |
Other liabilities: | $ | 5,000 |
Investments: | $ | 45,000 |
Operating assets: | $ | 37,000 |
During the year, Smashville, Inc., had 17,000 shares of stock outstanding and depreciation expense of $17,000. At the end of the year, Smashville stock sold for $54 per share. Calculate the price-book ratio, price-earnings ratio, and the price-cash flow ratio. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Price Book Ratio_____
Price Earning ______
Price cash flow _____
In: Finance
outline and carefully analyze Porter's generic determinants of strategy?
In: Finance
Edna Recording Studios, Inc., reported earnings available to common stock of $5,000,000 last year. From those earnings, the company paid a dividend of $1.33 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 45% debt, 20% preferred stock, and 35% common stock. It is taxed at a rate of 26%.
a. If the market price of the common stock is $42 and dividends are expected to grow at a rate of 6% per year for the foreseeable future, what is the company's cost of retained earnings financing?
b. If underpricing and flotation costs on new shares of common stock amount to $8 per share, what is thecompany's cost of new common stock
financing?
c. The company can issue $2.15 dividend preferred stock for a market price of $27
per share. Flotation costs would amount to $2 per share. What is the cost of preferred stock financing?
d. The company can issue $1,000-par-value, 10% coupon, 15-year bonds that can be sold for $1,170 each. Flotation costs would amount to $30
per bond. Use the estimation formula to figure the approximateafter-tax cost of debt financing?
e. What is the retained earnings and cost of new common stock WACC?
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You decide to sell short 50 shares of Ford at $10 per share. The initial margin requirement is 50%. The maintenance margin is 40%. (Please show the work/equations!!! Thanks!)
1) How much cash (X) must we put into the brokerage account?
2) How high can the stock price be before a margin call?
3) Suppose stock price immediately declines to P = $9. What is the rate of return for this investor?
4) Suppose stock price immediately rises to P = $11. What is the rate of return for this investor?
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You have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is 0.97.
Year | Fund | Market | Risk-Free | |||
2011 | –15.2 | % | –30.5 | % | 3 | % |
2012 | 25.1 | 20.1 | 4 | |||
2013 | 13.0 | 11.2 | 2 | |||
2014 | 7.4 | 8.0 | 5 | |||
2015 | –1.56 | –3.2 | 2 | |||
What are the Sharpe and Treynor ratios for the fund? (Do not round intermediate calculations. Round your answers to 4 decimal places.)
Sharpe ratio _____
Treynor ratio _____
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You are given the following information for Smashville, Inc.
Cost of goods sold: | $ | 169,000 | |
Investment income: | $ | 1,300 | |
Net sales: | $ | 282,000 | |
Operating expense: | $ | 44,000 | |
Interest expense: | $ | 7,400 | |
Dividends: | $ | 5,000 | |
Tax rate: | 30 | % | |
Current liabilities: | $ | 22,000 |
Cash: | $ | 21,000 |
Long-term debt: | $ | 92,000 |
Other assets: | $ | 37,000 |
Fixed assets: | $ | 120,000 |
Other liabilities: | $ | 6,000 |
Investments: | $ | 33,000 |
Operating assets: | $ | 64,000 |
During the year, Smashville, Inc., had 20,000 shares of stock outstanding and depreciation expense of $15,000. Calculate the book value per share, earnings per share, and cash flow per share. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Price Book Ratio_____
Price Earning ______
Price cash flow _____
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City | Probability Occurrence | Bond X Returns | Bond Z Returns | Portfolio Returns 50%X, 50%Z |
Bam | 25% | 3% | -2% | |
Medium | 50% | 4% | -1% | |
Depression | 25% | -5% | 6% |
Suppose a two-stock portfolio is created with 50% invested in bond X and 50% invested in bond Z.
Determine the portfolio returns in each city.
Determine the expected rate of returns for bond X, bond Z, and the
Portfolio.
Determine the standard deviations for bond X, bond Z, and the
Portfolio
In: Finance
A project has annual cash flows of $5,500 for the next 10 years and then $7,500 each year for the following 10 years. The IRR of this 20-year project is 12.34%. If the firm's WACC is 12%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.
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Acme Storage has a market capitalization of 92 million, and debt outstanding of 43 million. Acme plans to maintain this same debt-equity ratio in the future. The firm pays an interest of 7.8% on its debt and has a corporate tax rate of 30%.
a. If Acme's free cash flow is expected to be $12.15 million next
year and is expected to grow at a rate of 2% per year, what is
Acme's WACC?
b. What is the value of Acme's interest tax shield?
Click the icon to see the Worked Solution (Formula Solution).
a. If Acme's free cash flow is expected to be $12.15 million next
year and is expected to grow at a rate of 2% per year, what is
Acme's WACC?
The WACC is %_________. (Round to the nearest integer.)
b. What is the value of Acme's interest tax shield?
The value of Acme's interest tax shield is__________ $ million.
(Round to two decimal places.)
In: Finance
Hardmon Enterprises is currently an all-equity firm with an expected return of 11.1%. It is considering a leveraged recapitalization in which it would borrow and repurchase existing shares. Assume perfect capital markets.
a. Suppose Hardmon borrows to the point that its debt-equity ratio is 0.50. With this amount of debt, the debt cost of capital is 4% What will be the expected return of equity after this transaction?
b. Suppose instead Hardmon borrows to the point that its debt-equity ratio is 1.50. With this amount of debt, Hardmon's debt will be much riskier. As a result, the debt cost of capital will be 6%. What will be the expected return of equity in this case?
c. A senior manager argues that it is in the best interest of the shareholders to choose the capital structure that leads to the highest expected return for the stock. How would you respond to this argument?
In: Finance
Earleton Manufacturing Company has $2 billion in sales and $900,000,000 in fixed assets. Currently, the company's fixed assets are operating at 80% of capacity.
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Your mining company is considering an expansion of operations into iron ore. Your engineers surveyed a particular piece of land three weeks ago (the survey cost $45,000) and concluded the following:
Please provide the Free Cash Flow for each year of this project (times t=0 through t=4) and compute the project’s NPV.
(Enter the full dollar amount for each cash flow/NPV. Round your answer to the nearest dollar. For example, a cash flow of $273,610.68 would be entered as 273611. Negative values should be entered appropriately using the "-" symbol before the dollar amount.)
T = 0 Cash Flow:
T = 1 Cash Flow:
T = 2 Cash Flow:
T = 3 Cash Flow:
T = 4 Cash Flow:
Project NPV:
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REGRESSION AND INVENTORIES
Jasper Furnishings has $250 million in sales. The company expects that its sales will increase 11% this year. Jasper's CFO uses a simple linear regression to forecast the company's inventory level for a given level of projected sales. On the basis of recent history, the estimated relationship between inventories and sales (in millions of dollars) is as follows:
Inventories = $40 + 0.26(Sales)
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1. Project L requires an initial outlay at t = 0 of $40,000, its expected cash inflows are $15,000 per year for 9 years, and its WACC is 10%. What is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.
2. Project L requires an initial outlay at t = 0 of $43,775, its expected cash inflows are $9,000 per year for 8 years, and its WACC is 13%. What is the project's IRR? Round your answer to two decimal places.
3. Project L requires an initial outlay at t = 0 of $55,000, its expected cash inflows are $11,000 per year for 9 years, and its WACC is 9%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.
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Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $5.238 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will have a market value of $407,400. The project requires an initial investment in net working capital of $582,000. The project is estimated to generate $4,656,000 in annual sales, with costs of $1,862,400. The tax rate is 21 percent and the required return on the project is 9 percent. |
A. What is the project's Year 0 net cash flow? |
B. What is the project's Year 1 net cash flow? |
C. What is the project's Year 2 net cash flow?
D. What is the project's Year 3 net cash flow?
E. What is the NPV?
In: Finance