Good evening can you please answer the following question, it is a foundation of corporate finance subject.
The Evans Corporation finds that it is necessary to determine
its marginal cost of capital. Evans’ current capital structure
calls for 30 percent debt, 10 percent preferred stock, and 60
percent common equity. Initially, common equity will be in the form
of retained earnings (Ke) and then new common stock (Kn). The costs
of the various sources of financing are as follows: debt, 5.6
percent; preferred stock, 11 percent; retained earnings, 8 percent;
and new common stock, 9.4 percent.
a. What is the initial weighted average cost of capital? (Include
debt, preferred stock, and common equity in the form of retained
earnings, Ke.) (Do not round intermediate calculations. Round the
final answer to 2 decimal places.)
Weighted average cost of capital 7.58 %
b. If the firm has $26 million in retained earnings, at what size
of investment will the firm run out of retained earnings? (Enter
the answer in millions. Round the final answer to 2 decimal
places.)
Capital structure size (X) $ 43.33 million
c. What will the marginal cost of capital be immediately after that
point? (Equity will remain at 60 percent of the capital structure,
but it will all be in the form of new common stock, Kn.) (Do not
round intermediate calculations. Round the final answer to 2
decimal places.)
Marginal cost of capital %
d. The 5.6 percent cost of debt referred to above applies only to
the first $42 million of debt. After that, the cost of debt will be
7.2 percent. At what size of investment will there be a change in
the cost of debt? (Enter the answer in millions. Round the final
answer to 2 decimal places.)
Capital structure size (Z) $ million
e. What will the marginal cost of capital be immediately after that
point? (Consider the facts in both parts c and d.) (Do not round
intermediate calculations. Round the final answer to 2 decimal
places.)
Marginal cost of capital %
In: Finance
Create the amortization schedule for a loan of $11,000, paid monthly over three years using an APR of 9 percent. Enter the data for the first three months. (Round your answers to 2 decimal places.)
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In: Finance
Financial Ratios. Look again at Table 28.8 from P. 3., which gives abbreviated balance sheets and income statements for Walmart. Assume Walmart had a 35% marginal corporate tax rate in 2017. Calculate the following using balance sheet figures from the start of the year:
Return on assets.
Operating profit margin.
Sales-to-assets ratio.
Inventory turnover.
Debt-equity ratio.
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Fiscal 2017 |
Fiscal 2016 |
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Income Statement |
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Net Sales Cost of goods sold Selling, general, and administrative expenses Depreciation Earnings before interest & tax Interest expense Taxable income Tax Net Income |
$500,343 373,396 95,981 10,529 $ 20,437 2,178 $ 18,259 4,600 $ 13,659 |
$485,873 361,256 91,773 10,080 $ 22,764 2,267 $ 20.497 6,204 $ 14,293 |
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Fiscal 2017 |
Fiscal 2016 |
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Balance Sheet |
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Assets Current assets: Cash and marketable securities Accounts receivable Inventories Other current assets Total current assets |
$6,756 5,614 43,783 3,511 $59,664 |
$6,867 5,835 43,046 1,941 $57,689 |
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Fixed assets: Net fixed assets Other long-term assets Total assets |
$114,818 30,040 $204,522 |
$114,178 26,825 $198,825 |
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Liabilities & Shareholders’ Equity Current liabilities: Accounts payable Other current liabilities Total current liabilities Long-term debt Other long-term liability Total liabilities Total shareholders’ equity Total liabilities and shareholders’ equity |
$46,092 32,429 $78,521 36,825 11,307 $126,653 77,869 $204,522 |
$41,433 25,495 $66,928 42,018 12,081 $121,027 77,798 $198,825 |
In: Finance
1) How will a lower Fed Funds Rate affect the value of dollar relative to other countries, assuming the US inflation rate doesn’t change? How will the value of dollar change if other countries’ central banks take the same action?
2) What are some of the concerns policy makers may have regarding a further decrease in the Fed Funds Rate at this juncture?
3)Why is a wholesale flight out of the dollar unlikely in the immediate future?
In: Finance
Performance measures. Table 28.8 gives abbreviated balance sheets and income statements for Walmart. At the end of fiscal 2017, Walmart had 2,960 million shares outstanding with a share price of $106. The company’s weighted-average cost of capital was about 5%. Assume the marginal corporate tax rate was 35%. Calculate:
Market value added.
Market-to-book ratio.
Economic value added.
Return on start-of-the-year capital.
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Fiscal 2017 |
Fiscal 2016 |
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Income Statement |
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Net Sales Cost of goods sold Selling, general, and administrative expenses Depreciation Earnings before interest & tax Interest expense Taxable income Tax Net Income |
$500,343 373,396 95,981 10,529 $ 20,437 2,178 $ 18,259 4,600 $ 13,659 |
$485,873 361,256 91,773 10,080 $ 22,764 2,267 $ 20.497 6,204 $ 14,293 |
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Fiscal 2017 |
Fiscal 2016 |
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Balance Sheet |
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Assets Current assets: Cash and marketable securities Accounts receivable Inventories Other current assets Total current assets |
$6,756 5,614 43,783 3,511 $59,664 |
$6,867 5,835 43,046 1,941 $57,689 |
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Fixed assets: Net fixed assets Other long-term assets Total assets |
$114,818 30,040 $204,522 |
$114,178 26,825 $198,825 |
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Liabilities & Shareholders’ Equity Current liabilities: Accounts payable Other current liabilities Total current liabilities Long-term debt Other long-term liability Total liabilities Total shareholders’ equity Total liabilities and shareholders’ equity |
$46,092 32,429 $78,521 36,825 11,307 $126,653 77,869 $204,522 |
$41,433 25,495 $66,928 42,018 12,081 $121,027 77,798 $198,825 |
Market Value Added (MVA) = Market Value of Equity (MVE) - Book Value of Equity (BVE)
MVE = Outstanding shares * Share price = 2,960 shares * $106.00 = $313,760.00
BVE = $313,760.00 - $77,869.00 = $235,891.00
Market-to-book ratio = Market value of equity / Book value of equity
Market-to-book ratio = 313,760 / 77,869 = 4.03
In: Finance
In: Finance
| Year | cost to be depreciated | depreciation exp. per year | Accumulated depreciation | net remaining undepreciated cost | |
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Complete the following: Depreciation expense per year, accumulated depreciation year, and net remaining undepreciated cost.
Assumptions are as follows:
Cost to be depreciated: 20,000 Estimated useful life of equipment: 10 years Year
In: Finance
Southwestern Wear Inc. has the following balance sheet: Current assets $1,875,000 Accounts payable $375,000 Fixed assets 1,875,000 Notes payable 750,000 Subordinated debentures 750,000 Total debt $1,875,000 Common equity 1,875,000 Total assets $3,750,000 Total liabilities and equity $3,750,000 The trustee's costs total $326,000, and the firm has no accrued taxes or wages. Southwestern has no unfunded pension liabilities. The debentures are subordinated only to the notes payable. If the firm goes bankrupt and liquidates, how much will each class of investors receive if a total of $3.5 million is received from sale of the assets?
In: Finance
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Novell, Inc., has the following mutually exclusive projects. |
| Year | Project A | Project B | ||
| 0 | –$25,000 | –$28,000 | ||
| 1 | 14,500 | 15,500 | ||
| 2 | 11,000 | 12,000 | ||
| 3 | 3,400 | 11,000 | ||
| a-1. |
Calculate the payback period for each project. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) |
| a-2. |
If the company's payback period is two years, which, if either, of these projects should be chosen? |
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| b-1. |
What is the NPV for each project if the appropriate discount rate is 17 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
| b-2. |
Which, if either, of these projects should be chosen if the appropriate discount rate is 17 percent? |
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In: Finance
Suppose that you buy a TIPS (inflation-indexed) bond with a 1-year maturity and a coupon of 5% paid annually. Assume you buy the bond at its face value of $1,000, and the inflation rate is 10%.
a. What will be your cash flow at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b. What will be your real return?
c. What will be your nominal return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
In: Finance
Derek will deposit $2,480.00 per year for 21.00 years into an account that earns 16.00%, The first deposit is made next year. How much will be in the account 39.00 years from today?
Submit
Answer format: Currency: Round to: 2 decimal places.
unanswered
not_submitted
#2
Derek will deposit $2,323.00 per year for 5.00 years into an account that earns 5.00%. The first deposit is made today. How much will be in the account 5.0 years from today? Note that he makes 5.0 total deposits.
Submit
Answer format: Currency: Round to: 2 decimal places.
unanswered
not_submitted
#3
Derek will deposit $1,891.00 per year into an account starting today and ending in year 8.00. The account that earns 14.00%. How much will be in the account 8.0 years from today?
Submit
Answer format: Currency: Round to: 2 decimal places.
unanswered
not_submitted
#4
Derek will deposit $7,984.00 per year for 11.00 years into an account that earns 8.00%, The first deposit is made next year. How much will be in the account 44.00 years from today?
Submit
Answer format: Currency: Round to: 2 decimal places.
unanswered
not_submitted
#5
Derek will deposit $5,819.00 per year for 17.00 years into an account that earns 15.00%, The first deposit is made next year. He has $16,600.00 in his account today. How much will be in the account 36.00 years from today?
Submit
Answer format: Currency: Round to: 2 decimal places.
In: Finance
Isaac Díez. Isaac Díez Peris lives in Rio de Janeiro. While attending school in Spain he meets Juan Carlos Cordero from Guatemala. Over the summer holiday Isaac decides to visit Juan Carlos in Guatemala City for a couple of weeks. Isaac's parents give him some spending money, R$4,700. Isaac wants to exchange it for Guatemalan quetzals (GTQ). He collects the following rates:
Spot rate on the GTQ/€ exchange rate is GTQ 10.5268=€1.00
Spot rate on the €/R$ exchange rate is euro 0.3547 =R$1.00
a. What is the Brazilian real/Guatemalan quetzal cross rate?
b. How many quetzals will Isaac get for his reais?
In: Finance
A bicycle manufacturer currently produces 221 comma 000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $ 1.90 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $ 1.40 per chain. The necessary machinery would cost $ 291 comma 000 and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using a ten-year straight-line depreciation schedule. The plant manager estimates that the operation would require $ 44 comma 000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are $ 21 comma 825. If the company pays tax at a rate of 20 % and the opportunity cost of capital is 15 %, what is the net present value of the decision to produce the chains in-house instead of purchasing them from the supplier?
The annual free cash flows for years 1 to 10 of buying the chains is?
The NPV of buying the chains from the FCF is?
The initial FCF of producing the chains is?
The FCF in years 1 through 9 of producing the chains is
The FCF in year 10 of producing the chains is
The NPV of producing the chains from the FCF is
The net present value of producing the chains in-house instead of purchasing them from the supplier is
In: Finance
December 31, 2015, Martin Corp invested in Marlin’s 5-year, $200,000 bond with a 5% interest rate for $191,575. The bond pays semiannual interest on June 30th and December 31st. The fair values of the bonds at the end of 2016~2018 are $194,500, $194,200, and $195,750. Martin sold its investment in Marlin’s bond on July 1, 2019 at 98 ½ (i.e. selling price is = 98.5% of the face value). Please answer all following questions using Excel Template.
In: Finance
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Bond P is a premium bond with a coupon rate of 8.2 percent. Bond D is a discount bond with a coupon rate of 5.9 percent. Both bonds make annual payments and have a YTM of 7 percent, a par value of $1,000, and five years to maturity. |
| a. | What is the current yield for Bond P? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| b. | What is the current yield for Bond D? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| c. | If interest rates remain unchanged, what is the expected capital gains yield over the next year for Bond P? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| d. | If interest rates remain unchanged, what is the expected capital gains yield over the next year for Bond D? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
In: Finance