In: Finance
Debt Corporation is financed with 50 percent debt, while equity Corporation has the same amount of total assets, but is financed entirely with equity. Both Corporation have a marginal tax rate of 40 percent. Which of the following statements is most correct.
If the two corporations have the same return on assets, Equity Corporation will have a higher return on equity.
If the two corporations have the same basic earning power (BEP), Equity Corporation will have a higher return on assets.
If the two corporations have the same level of sales and basic earning power, Equity Corporations will have a lower net profit margin.
All of the answers above are correct.
None of the answers above are correct.
Can you also explain why?
In: Finance
XYZ Corporation published the following information in
its financial statements for its 2018 annual report:
Income Statement
Items:
Sales
$76,000
- Cost of goods sold
49,000
Gross profit
27,000
- Cash Operating expenses
$9,000
- Depreciation
2,000
Total Operating Expenses
11,000
EBIT
16,000
- Interest expense
840
EBT
15,160
- Income tax expense
5,306
Net Income
$9,854
Balance Sheet Items:
Cash
$9,000
Marketable securities
2,000
Accounts receivable
11,000
Inventories
7,000
Fixed Assets, net
24,000
Total Assets
$53,000
Accounts payable
$8,000
Accrued payables
3,000
Bonds payable
12,000
Common stock
16,000
Retained earnings
14,000
Total Liabilities and Equity
$53,000
Sales in 2019 are estimated to be $90,000.
$5,000 of the cash operating expenses for 2018 are
considered variable costs, and the remainder are fixed
costs.
Depreciation and the remainder of cash operating
expenses are considered to be fixed costs.
Cash, accounts receivable, inventories, accounts
payable, and accrued payables are considered to be spontaneous
items.
Marketable securities, net fixed assets, bonds
payable, and common stock are discretionary.
$5,000 of bonds payable at the end of 2018 are
considered "current liabilities," and will be repaid on January 1,
2019. The interest rate on the bonds for 2019 will remain the same
as it was in 2018.
The company will purchase fixed assets of $3,600 in
2019, but overall depreciation for 2019 will remain the same dollar
amount as it was for 2018.
The firm paid a dividend of $3,942 in 2018, and will
maintain its 2018 dividend payout ratio for 2019.
The income tax rate for 2019 is expected to be the
same as it was in 2018.
Required:
Prepare the pro-forma 2019 income statement and
balance sheet for XYZ Corporation.
In: Finance
In: Finance
What are the biggest differences between forward and futures? You need to list at least TWO differences, and provide some detailed explanations.
In: Finance
In: Finance
You are looking to buy a car. You can afford $650 in monthly payments for five years. In addition to the loan, you can make a $750 down payment. If interest rates are 8 percent APR, what price of car can you afford (loan plus down payment)? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
In: Finance
Current Income Statement Current Balance Sheet
Net sales $6,500 Cash $ 900 Accounts payable $1,020
Less: Cost of goods sold 4,922 Accounts rec. 620 Long-term debt 4,360
Less: Depreciation 570 Inventory 2,850 Common stock 2,400
Earnings before interest and taxes 1,008 Total $4,370 Retained earnings 1,190
Less: Interest paid 300 Net fixed assets 4,600
Taxable Income $ 708 Total assets $8,970 Total liab. & equity $8,970
Less: Taxes 248
Net income $ 460
Dividends $184 Add to RE =
________ 6. What is the retention or plowback ratio for this company?
________ 7. Assume that the firm is operating at 85 percent of capacity. What is the full-capacity level of
sales?
WE WILL NOT COVER THIS IS THE FALL 2014 CLASS
________ 8. Assume the firm has a constant dividend payout ratio and a projected sales increase of 10 percent. All
costs, assets, and current liabilities vary directly with sales. What is the external financing need?
________ 9. What is the Equity Multiplier?
________ 10. Assume the firm has a constant dividend payout ratio and a constant debt-equity ratio. What is the fastest the company can grow assuming they do not want any external financing?
In: Finance
|
The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 24 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. |
| Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | ||||||
| Investment | $ | 27,700 | ||||||||
| Sales revenue | $ | 14,800 | $ | 16,400 | $ | 17,800 | $ | 14,300 | ||
| Operating costs | 3,600 | 3,450 | 5,600 | 4,200 | ||||||
| Depreciation | 6,925 | 6,925 | 6,925 | 6,925 | ||||||
| Net working capital spending | 370 | 270 | 365 | 220 | ? | |||||
| a. |
Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) |
| b. |
Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. A negative amount should be indicated by a minus sign.) |
| c. |
Suppose the appropriate discount rate is 10 percent. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
In: Finance
Balance Sheet
2014 2015 2014 2015
Cash $ 1,800 $ 2,100 Accounts payable $ 5,200 $ 3,900
Accounts receivable 7,300 6,400 Long-term debt 27,400 22,500
Inventory 10,200 12,300 Common stock 17,500 21,500
Net fixed assets 40,900 36,700 Retained earnings 10,100 9,600
Total assets $60,200 $57,500 Total liabilities and equity $60,200 $57,500
Income Statement
Net Sales $73,900
Costs 58,600
Depreciation 5,200
EBIT 10,100
Interest 2,200
Taxable income 7,900
Taxes 1,185
Net Income $ 6,715
________ 1. What is the profit margin for 2015?
________ 2. What is the Operating Cash flow for 2015?
________ 3. What is the total amount of stockholders’ equity for 2015?
________ 4. What is the common size ratio for Depreciation in 2015?
________ 5. What is the amount of Net Capital Spending?
In: Finance
While in Mexico, you buy a lottery ticket and win. The award is 5 annual payments of MXN 1,000,000 with the first payment made today.
The APR interest rate for 4 years of future MXN cash flows is 6% and for USD cash flows is 2%.
The exchange rate today is MXN19.6/USD. What is the value today of your winnings in terms of USD? Show the result taking the present value (PV) in both currencies (hint: determine expected exchange rates for next 5 years to convert MXN payments into USD).
In: Finance
Please distinguish between the initial rate of interest and expected yield on an ARM. What is the general relationship between the two? How do they generally reflect ARM terms?
In: Finance
An investment project will cost the firm $200,000 now. The additional cash flows earned as a result of the investment are $30,000 in the first year; $50,000 in the second year; $75,000 in the third year; $90,000 in the fourth year; and $120,000 in the fifth year. After that, the investment results in no further increases in cash flows. Assuming cash flows are evenly distributed throughout the year, the payback period for this investment is ______.
A. five years
B. four years
C. three and a half years
D. We cannot answer this question without knowing the cost of capital.
In: Finance
Submit a written paper which is 4-5 pages in length, exclusive of the reference page, double spaced in Times New Roman font which is no greater than 12 points in size. The paper should cite at least three sources independent of the textbook.
In this paper, please discuss the following case study. In doing so, explain your approach to the problem, support your approach with references, and execute your approach. Provide an answer to the case study’s question with a recommendation.
This case continues following the new project of the WePROMOTE Company, that you and your partner own. WePROMOTE is in the promotional materials business. The project being considered is to manufacture a very unique case for smart phones. The case is very durable, attractive and fits virtually all models of smart phone. It will also have the logo of your client, a prominent, local company and is planned to be given away at public relations events by your client.
As we know from prior cases involving this company, more and more details of the project become apparent and with more precision and certainty.
The following are the final values to the data that you have been estimating up to this point:
You can borrow funds from your bank at 3%.
The cost to install the needed equipment will be $105,000 and this cost is incurred prior to any cash is received by the project.
The gross revenues from the project will be $25,000 for year 1, then $27,000 for years 2 and 3. Year 4 will be $28,000 and year 5 (the last year of the project) will be $23,000.
The expected annual cash outflows (current project costs) are estimated at being $13,000 for the first year, then $12,000 for years 2, 3, and 4. The final year costs will be $10,000.
Your tax rate is 30% and you plan to depreciate the equipment on a straight-line basis for the life of the equipment.
After 5 years the equipment will stop working and will have a residual (salvage) value of $5,000).
The discount rate you are assuming is now 7%.
Requirements of the paper:
Perform the final NPV calculations and provide a narrative of how you calculated the computations and why.
Then provide a summary conclusion on whether you should continue to pursue this business opportunity.
Research, using at least three sources other than the textbook materials that support your calculations and conclusions.
Papers will be assessed on the following criteria:
Provide the final, accurate NPV calculations.
A narrative on how the NPVs were calculated. The narrative should include how the data relating to depreciation and its tax consequences affect the cash flow of the project.
Supporting narrative based on research of sources other than the textbook materials.
Provide a conclusion on whether this business opportunity should be pursued.
In: Finance
Let's examine your ability to calculate NPV. Let's assume a piece of equipment has an implied discount rate of 8% and an initial cost of $1,000,000. The piece of equipment is expected to generate positive cash flows in years 1-3 of $150,000 and years 4-6 of $200,000 and $300,000 in year 7. Let's also assume that you have to spend $150,000 in year 4 in order to maintain this piece of equipment. What is the project's NPV? (ignoring income taxes). (Be sure to show your work!) (This question is worth 3 points and an incorrect response or unanswered initial response will result in 0 points assigned)
In: Finance