You’ve collected the following information about Erna, Inc.: Sales = $ 335,000 Net income = $ 18,800 Dividends = $ 7,600 Total debt = $ 71,000 Total equity = $ 102,000 What is the sustainable growth rate for the company? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Sustainable growth rate? % Assuming it grows at this rate, how much new borrowing will take place in the coming year, assuming a constant debt–equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Additional borrowing? What growth rate could be supported with no outside financing at all? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Growth rate? %

The cost of debt   Gronseth Drywall​ Systems, Inc., is in discussions with its investment bankers regarding the issuance of new bonds. The investment banker has informed the firm that different maturities will carry different coupon rates and sell at different prices. The firm must choose among several alternatives. In each​ case, the bonds will have1,000 par value and flotation costs will be $30 per bond. The company is taxed at 23​%.

Use the approximation formula to calculate the ​after-tax cost of financing with the following alternative.  ​(Click on the icon located on the​ top-right corner of the data table below in order to copy its contents into a​ spreadsheet.)

The​ after-tax cost of financing using the approximation formula is _____.

​(Round to two decimal​ places.)

Consider the three stocks in the following table. P_t represents price at time t, and Q_t represents shares outstanding at time t. Stock C splits two-for-one in the last period.

a. Calculate the rate of return on a price-weighted index of the three stocks for the first period (t = 0 to t = 1). (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What will be the divisor for the price-weighted index in year 2? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. Calculate the rate of return of the price-weighted index for the second period (t = 1 to t = 2).

Any advice or recommendation would be greatly appreciated

You are the sport agent for a rising basketball star just drafted in the first round. Your client has two offers on the table option

1. $90 million dollars over 5 years or option
2. $30 million signing bonus and 40 million over the next 3 yrs.

What option do you recommend? How does the time value of money impact your decision?

A $5000 investment today will return $1,313 each year for the next four years with the first payment starting in one year. The NPV of this investment is negative at your required return of 2.5%. Which of the following is closest to the internal rate of return on this project?

You observe the exchange rates from the following 4 currencies(US, EU, UK, and Japan):

a.$1.19/€, $1.30/£, $0.0091/¥

b.€0.84/$, €1.09/£, €0.0076/¥

c.£0.77/$, £.91/€, £0.0055/¥

d.¥110.27/$, ¥130.77/¥, 183.26/£

Suppose that you incur 2% transaction costs. That is, if you attempt to convert one currency to another, you only get 98% of the quoted rate. So with €1, you can get .98*$1.19 = $1.17 There is an arbitrage opportunity in this market. Find it and describe each transaction you would take to exploit it. If a large amount of money went through this process, this would exert pressure on these exchange rates. For each transaction in your arbitrage strategy, explain how that transaction would impact currency values.

Problem 3-6 Financial Statements (LO1,4)

South Sea Baubles has the following (incomplete) balance sheet and income statement.

a&b. What is shareholders’ equity in 2015 and 2016? (Enter your answers in millions.)

c&d. What is net working capital in 2015 and 2016? (Enter your answers in millions.)

e. What are taxes paid in 2016? Assume the firm pays taxes equal to 35% of taxable income. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

f. What is cash provided by operations during 2016? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

g. Net fixed assets increased from $900 million to $1,000 million during 2016. What must have been South Sea’s gross investment in fixed assets during 2016? (Enter your answer in millions.)

Problem 3-24 Free Cash Flow (LO3)

The following table shows an abbreviated income statement and balance sheet for Quick Burger Corporation for 2016.

In 2016 Quick Burger had capital expenditures of $3,057.

a. Calculate Quick Burger’s free cash flow in 2016. (Enter your answer in millions.)

b. If Quick Burger was financed entirely by equity, how much more tax would the company have paid? (Assume a tax rate of 35%.) (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

c. What would the company’s free cash flow have been if it was all-equity financed?

Convertible bond vs straight fixed-rate bond.

Which bond has a higher demand, higher risk, and price ceteris paribus.

Problem 3-7 Financial Statements (LO1)

Here are the 2015 and 2016 (incomplete) balance sheets for Newble Oil Corp.

a&b. What was owners’ equity at the end of 2015 and 2016? (Enter your answers in millions.)

c. If Newble paid dividends of $180 million in 2016 and made no stock issues, what must have been net income during the year? (Enter your answer in millions.)

d. If Newble purchased $380 million in fixed assets during 2016, what must have been the depreciation charge on the income statement? (Enter your answer in millions.)

e. What was the change in net working capital between 2015 and 2016? (Enter your answer in millions.)

f. If Newble issued $232 million of new long-term debt, how much debt must have been paid off during the year? (Enter your answer in millions.)

Question 3 – Capital Investment Analysis

The management team of Accent Group Limited have received a proposal from the manager of Hype DC. This proposal concerns a major upgrade to Hype DC's stores to improve the customer experience. Key details relating to this proposal include:

• The initial cost will be $22 million. This cost will be depreciated using the straight line method over the 5 year life of the upgrade.
• During year 1, the firm will increase marketing costs by $2.0 million to promote the store upgrades.
• Over the five year life of the project, it is expected that the upgrade will increase the firm's sales by $18 million per year. On average, cost of sales is 45% of revenue.
• The firm will need to higher additional staff over the life of the project to help to deal with the increased sale volume. In year 1, the firm's staffing costs will increase by $1.0 million. These costs will increase by 3.5% p.a.
• The upgrade is expected to increase the firm's energy costs by $500,000 in year 1. This increase will be ongoing across the life of the project and will increase by 6% p.a.
• Upgraded stores will include an old shoe recycling drop off zone. This recylcing program will cost $75,000 in year 1. These costs will increase by 2% p.a.
• At the end of year 3, the firm will spend $1.5 million on a minor refurbishment to the stores.

The firm’s tax rate is 30%. The firm requires a 16% required rate of return on all potential investments.

Required

In relation to the above proposal:

1. Calculate the annual after tax cash flows and annual after tax profit

(show with workings please)

Problem 3-14 Income versus Cash Flow (LO3)

Butterfly Tractors had $15.00 million in sales last year. Cost of goods sold was $8.20 million, depreciation expense was $2.20 million, interest payment on outstanding debt was $1.20million, and the firm’s tax rate was 35%.

a. What was the firm’s net income? (Enter your answers in millions rounded to 2 decimal places.)

b. What was the firm’s cash flow? (Enter your answers in millions rounded to 2 decimal places.)

c. What would happen to net income and cash flow if depreciation were increased by $1.20 million? (Enter your numeric answers in millions rounded to 2 decimal places. Select "unaffected" if the results do not affect the balance.)

f. What would be the impact on cash flow if depreciation was $1.20 million and interest expense was $2.20 million? (Enter your numeric answer in millions rounded to 2 decimal places. Select "unaffected" if the results do not affect the balance.)

Please Answer Question 2 Only:

You have the following initial information on CMR Co. on which to base your calculations and discussion for questions 1) and 2):
• Current long-term and target debt-equity ratio (D:E) = 1:4
• Corporate tax rate (TC) = 30%
• Expected Inflation = 1.75%
• Equity beta (E) = 1.6385
• Debt beta (D) = 0.2055
• Expected market premium (rM – rF) = 6.00%
• Risk-free rate (rF) = 2.15%

^{1) The CEO of CMR Co., for which you are CFO, has requested that you evaluate a potential investment in a new project. The proposed project requires an initial outlay of $7.15 billion. Once completed (1 year from initial outlay) it will provide a real net cash flow of $575 million in perpetuity following its completion. It has the same business risk as CMR Co.’s existing activities and will be funded using the firm’s current target D:E ratio.
a) What is the nominal weighted-average cost of capital (WACC) for this project?
b) As CFO, do you recommend investment in this project? Justify your answer (numerically).}

Please Answer Question 2 Only:

2) Assume now a firm that is an existing customer of CMR Co. is considering a buyout of CMR Co. to allow them to integrate production activities. The potential acquiring firm’s management has approached an investment bank for advice. The bank believes that the firm can gear CMR Co. to a higher level, given that its existing management has been highly conservative in its use of debt. It also notes that the customer’s firm has the same cost of debt as that of CMR Co. Thus, it has suggested use of a target debt-equity ratio of 2:6 when undertaking valuation calculations.
a) What would the required rate of return for BFS Co.’s equity become if the proposed gearing structure were adopted following acquisition by the customer?
b) Would the above project described in 1) be viable for the new owner of BFS Co.? Justify your answer (numerically).

Please Only answer Question 2: Question 1 has been given for context of the question

Given the following list, indicate if each entry normally is an item related to the ongoing core business of a company. Enter “Yes” if it normally relates to the ongoing core business and “No” of it does not.

A) Litigation-related charges:

B) Royalty expense:

C) Impairment of goodwill:

D) Restructuring charges:

E) SG&A expense:

F) R&D expense:

G) Gains and losses on the sale of assets:

H) Amortization of acquired intangibles:

I) Purchased R&D expense:

J) Asset write-offs: