) The Fabulous Fashions Corporation has an operating profit of $25,000, a reinvestment rate of 10%,...

) The Fabulous Fashions Corporation has an operating profit of $25,000, a reinvestment rate of 10%, and a growth rate (g) of 3%. The owner said she will reduce her salary so that the reinvestment rate can increase to 20%. Using a 9% discount rate, calculate the value of Fabulous Fashions with the 10% investment rate and then a 20% reinvestment rate. Construct a table and compare the FCF’s, ROIC, RR, growth rate (g), and values. Use an Excel spreadsheet. Paste information here or attach file.

Value_{t =} FCF_t+1 / discount – growth rate

Expert Solution

Below is the explanation how we have gone about this problem and excel screenshots of both the formulas used in excel sheet and the final results of excel file.

Since, we are not given with the ROIC number which would be crucial for our calculation, our first step would be to calculate that. For that, we have used the base case Growth of 3% and Reinvestment Rate of 10%.

ROIC =

Thus, using this ROIC and new reinvestment rate we have calculated new growth rate. That has been applied to calculate Operating profit in both the cases. From that, FCF has been calculated as follows:

FCF₁ = Operating Profit₁ * (1 - Reinvestment Rate)

Then, we have used the formula to calculate the value of firm.

jeff jeffy answered 2 years ago

Price Variable Cost Fixed Cost Target Profit 10 5 25,000 15,000 What is the target profit...

Price Variable Cost Fixed Cost Target Profit 10 5 25,000 15,000 What is the target profit Quantity? Price Variable Cost Fixed Cost Target Profit 100 70 3,000,000 1,500,000 What is the Break Even Quantity? Price Variable Cost Fixed Cost Target Profit 100 70 3,000,000 1,500,000 What is the contribution margin ratio (decimal format)? Price Variable Cost Fixed Cost Target Profit 10 5 25,000 15,000 What is the Break Even Quantity? Price Variable Cost Fixed Cost Target Profit 80 65 450,000...

What is reinvestment rate risk? Which has morereinvestment rate risk: a 1-year bond or a...

What is reinvestment rate risk? Which has more reinvestment rate risk: a 1-year bond or a 10-year bond.please explain

Assume a firm has $45 million in operating profit. The firm’s tax rate is 40%. What...

Assume a firm has $45 million in operating profit. The firm’s tax rate is 40%. What is the tax shield of the firm’s $38 million in debt that charges a 10% interest rate? Which of the following is TRUE regarding Company ABC given the following information? Current Assets = $250 Fixed Assets =$70 Current Liabilities = $110 Long term Debt = $90 Sales = $330 Net Income = $60 Shareholders’ Equity = $320 Current Ratio = 1.30 Asset turnover= 2.75...

uppose that a project has a cash flow pattern (-$2,000, $25,000, -$25,000) and discount rate of...

uppose that a project has a cash flow pattern (-$2,000, $25,000, -$25,000) and discount rate of 10%, its modified IRR is given by: Question 14 options: 25.22% or 250% 25.22% or 400% 13.64% 12.65%

Hannah Louisa, the sole owner of Hannah’s Hair Fashions has prepared a budgeted profit and loss...

Hannah Louisa, the sole owner of Hannah’s Hair Fashions has prepared a budgeted profit and loss statement for the month of May. She has asked you to prepare a Cash Budget for the business for May so that she can determine how much cash she can withdraw during May and still maintain her desired minimum monthly cash balance of $600. She provides you with the following additional information about the business. The business pays for 70% of its purchases in...

10. The Hydride Division of Murdoch Corporation is an investment center. It has $3,000,000 of operating...

10. The Hydride Division of Murdoch Corporation is an investment center. It has $3,000,000 of operating assets. During 2014, the Hydride Division earned operating income of $680,000 on $12,000,000 of sales. Murdoch’s companywide return on investment or desired rate of return is approximately 12% SHOW WORK FOR CREDIT! What is the ROI?______________________ What is the margin? ____________________ What is the turnover? _____________________ What is the residual income? _______________

Whitlaw Corporation has $150,000 of gross profit on sales, operating expenses of $60,000 (excluding cost recovery),...

Whitlaw Corporation has $150,000 of gross profit on sales, operating expenses of $60,000 (excluding cost recovery), $4,000 dividend income from a one-percent-owned corporation, a $10,000 capital gain and $25,000 capital loss, tax depreciation of $40,000 (total financial accounting depreciation is $22,000),a $5,000 charitable contribution, and a net offering loss carryover from the prior year of $10,000. a. What is Whitlaw's taxable income? b. What is Whitlaw's income tax for 2018? c. Complete a schedule M-1 or a facsimile for the...

Pfizer currently has a Net Profit Margin of 3%, their corporation tax rate is 40% and...

Pfizer currently has a Net Profit Margin of 3%, their corporation tax rate is 40% and their annual interest payments are $5 million. How much do Pfizer's sales need to be to produce a times interest earned of 8.0?

Herring Corporation has operating income of $265,000 and a 25%tax rate. The firm has short-term...

Herring Corporation has operating income of $265,000 and a 25% tax rate. The firm has short-term debt of $110,000, long-term debt of $349,000, and common equity of $459,000. What is its return on invested capital?a. 18.57%b. 16.65%c. 21.65%d. 16.07%e. 19.42%

17-1 Consider a 6 percent 10-year bond purchased at face value($1000). Assuming a reinvestment rate of...

17-1 Consider a 6 percent 10-year bond purchased at face value($1000). Assuming a reinvestment rate of 5 percent, calculate The interest on interest = the total dollar return = the realized compound yield =

Question