Question
In: Finance
Alpha Corporation has earnings before interest and tax (EBIT) per annum in perpetuity of $200,000. The...
Alpha Corporation has earnings before interest and tax (EBIT)
per annum in perpetuity of $200,000. The tax rate is 30%. The firm
is funded $50,000 of debt and $150,000 of equity. The cost of
equity is 18% and the cost of debt is 6%.
Given the information above, what is the appropriate discount rate
if earnings before interest and tax (EBIT) are used to calculate
the value of the firm?
| A. |
20.79% |
|
| B. |
25.71% |
|
| C. |
18% |
|
| D. |
14.55% |
|
| E. |
None of the above |
2.
Firm A has a value of $500 million and Firm B has a value of
$300 million. Firm A has 1000 shares outstanding, and Firm B has
800 shares outstanding. Suppose that the merger would increase cash
flows of the combined firm by $5 million in perpetuity. Assuming
the cost of capital for the new firm is 5%.
Suppose that instead of paying cash, Firm A acquires B by offering
two (new) shares of A for every three shares of B. The net gain to
Firm A's shareholders is around:
| A. |
$30 million |
|
| B. |
$10 million |
|
| C. |
$70 million |
|
| D. |
$87 million |
|
| E. |
None of the above |
Solutions
Expert Solution
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jeff jeffy answered 1 year agoRelated Solutions
Alpha Corporation has earnings before interest and tax (EBIT) per annum in perpetuity of $200,000. The...
Alpha Corporation has earnings before interest and tax (EBIT)
per annum in perpetuity of $200,000. The tax rate is 30%. The firm
is funded $50,000 of debt and $150,000 of equity. The cost of
equity is 18% and the cost of debt is 6%.
Given the information above, what is the appropriate discount rate
if earnings after interest and before tax (EAIBT)is used to
calculate the equity value of the firm?
A.
20.79%
B.
25.71%
C.
18%
D.
14.55%
E....
Alpha Corporation has earnings before interest and tax (EBIT) per annum in perpetuity of $200,000. The...
Alpha Corporation has earnings before interest and tax (EBIT)
per annum in perpetuity of $200,000. The tax rate is 30%. The firm
is funded $50,000 of debt and $150,000 of equity. The cost of
equity is 18% and the cost of debt is 6%.
Given the information above, what is the appropriate discount rate
if earnings before interest and after tax (EBIAT) are used to
calculate the value of the firm?
A.
20.79%
B.
25.71%
C.
18%
D.
14.55%
E....
What is Earnings Before Interest and Taxes-Earnings Per Share (EBIT-EPS) analysis? What is the indifference curve?...
What is Earnings Before Interest and Taxes-Earnings Per Share
(EBIT-EPS) analysis? What is the indifference curve? How is risk
factored into the EBIT-EPS analysis? What are basic shortcomings of
EBIT's analyses?
Suppose E-M Corp. (EMC) has perpetual earnings before interest and taxes (EBIT) of $10 million per...
Suppose E-M Corp. (EMC) has perpetual earnings before interest
and taxes (EBIT) of $10 million per year. E-M’s unlevered cost of
equity is 12%. EMC is subject to a corporate tax rate of 40%. It
has $30 million in permanent debt in its capital structure, and the
(pre-tax) cost of debt is 7% (EAR).
What is the after-tax WACC of E-M Corp.?
Select one:
7.99%
9.12%
7.79%
12.00%
14.80%
9.68%
10.49%
8.58%
1. The Awesome Fun Conglomerate has earnings before interest and taxes (EBIT) of $58,218 and net...
1. The Awesome Fun Conglomerate has earnings before interest and
taxes (EBIT) of $58,218 and net income (NI) of $4,042. The tax rate
is 24 percent. What is the times interest earned ratio? A. 0.08 B.
1.10 C. 8.90 D. 2.49 E. 1.26
2. Global Logistics has sales of $783,200, cost of goods sold of
$312,900, and inventory of $174,315. What is the inventory turnover
rate? A. 17.37 times B. .9 times C. 2.71 times D. 3.4 times E. 1.79...
Billco Corporation expects earnings before interest and taxes to be $450,000 for the current tax year....
Billco Corporation expects earnings before interest and taxes to
be $450,000 for the current tax year. Using the U.S. corporate flat
tax rate of 21%, compute the Billco’s earnings available for common
stockholders if the firm pays $25,000 in interest versus $25,000 in
preferred stock dividends.
Answers:
A.) $371,000; $347,000
B.) $357,080; $357,080
C.) $335,750; $330,500
D.) $376,040; $352,040
Sunrise, Inc., has no debt outstanding and a total market value of $200,000. Earnings before interest...
Sunrise, Inc., has no debt outstanding and a total market value
of $200,000. Earnings before interest and taxes, EBIT, are
projected to be $13,000 if economic conditions are normal. If there
is strong expansion in the economy, then EBIT will be 15 percent
higher. If there is a recession, then EBIT will be 30 percent
lower. The company is considering a $70,000 debt issue with an
interest rate of 7 percent. The proceeds will be used to repurchase
shares of...
Castle, Inc., has no debt outstanding and a total market value of $200,000. Earnings before interest...
Castle, Inc., has no debt outstanding and a total market value
of $200,000. Earnings before interest and taxes, EBIT, are
projected to be $30,000 if economic conditions are normal. If there
is strong expansion in the economy, then EBIT will be 18 percent
higher. If there is a recession, then EBIT will be 20 percent
lower. The firm is considering a debt issue of $75,000 with an
interest rate of 8 percent. The proceeds will be used to repurchase
shares...
Pendergrast, Inc., has no debt outstanding and a total market value of $200,000. Earnings before interest...
Pendergrast, Inc., has no debt outstanding and a total market
value of $200,000. Earnings before interest and taxes, EBIT, are
projected to be $24,000 if economic conditions are normal. If there
is strong expansion in the economy, then EBIT will be 15 percent
higher. If there is a recession, then EBIT will be 30 percent
lower. Pendergrast is considering a $70,000 debt issue with an
interest rate of 7 percent. The proceeds will be used to repurchase
shares of stock....
RAK, Inc., has no debt outstanding and a total market value of $200,000. Earnings before interest...
RAK, Inc., has no debt outstanding and a total market value of
$200,000. Earnings before interest and taxes, EBIT, are projected
to be $26,000 if economic conditions are normal. If there is strong
expansion in the economy, then EBIT will be 12 percent higher. If
there is a recession, then EBIT will be 25 percent lower. RAK is
considering a $65,000 debt issue with an interest rate of 6
percent. The proceeds will be used to repurchase shares of stock....
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