Question
In: Finance
(Related to Checkpoint 15.1) (Calculating capital structure weights) Winchell Investment Advisors is evaluating the capital structure...
(Related to Checkpoint 15.1) (Calculating capital structure weights) Winchell Investment Advisors is evaluating the capital structure of Ojai Foods. Ojai's balance sheet indicates that the firm has $48.26 million in total liabilities. Ojai has only $40.15 million in short- and long-term debt on its balance sheet. However, because interest rates have fallen dramatically since the debt was issued, Ojai's short- and long-term debt has a current market price that is 10 percent over its book value or $44.17 million. The book value of Ojai's common equity is $49.77 million but the market value of the equity is currently $99.72 million.
b. What is Ojai's debt-to-enterprise-value ratio calculated using the market values of the firm's debt and equity and assuming excess cash is zero?
c. If you were trying to describe Ojai's capital structure to a potential lender (i.e., a bank), would you use the book-value-based debt ratio or the market-value-based debt-to-enterprise-value ratio?
Solutions
jeff jeffy answered 9 months agoRelated Solutions
(Related to Checkpoint 15.1) (Calculating debt ratio) Webb Solutions, Inc. has the following financial structure:...
(Related to Checkpoint 15.1) (Calculating debt
ratio) Webb Solutions, Inc. has the following financial
structure:
Accounts payable
$490,000
Short-term debt
240,000
Current liabilities
$730,000
Long-term debt
731,000
Shareholders' equity
493,000
Total
$1,954,000
a. Compute Webb's debt ratio and
interest-bearing debt ratio.
b. If the market value of Webb's equity
is
$2 comma 039 comma 0002,039,000
and the value of the firm's debt is equal to its book value,
assuming excess cash is zero, what is thedebt-to-enterprise-value
ratio for Webb?...
Winchell Investment Advisors is evaluating the capital structure of Ojai Foods. Ojai's balance sheet indicates...
Winchell Investment Advisors is evaluating the capital structure
of Ojai Foods. Ojai's balance sheet indicates that the firm has
$51.75 million in total liabilities. Ojai has only $40.09 million
in short- and long-term debt on its balance sheet. However,
because interest rates have fallen dramatically since the debt was
issued, Ojai's short- and long-term debt has a current market
price that is 10 percent over its book value or $44.10million. The
book value of Ojai's common equity is...
(Related to Checkpoint 11.1 and Checkpoint 11.4) (Calculating NPV, PI, and IRR) Fijisawa, Inc. is considering...
(Related to Checkpoint 11.1 and Checkpoint 11.4) (Calculating
NPV, PI, and IRR) Fijisawa, Inc. is considering a major
expansion of its product line and has estimated the following cash
flows associated with such an expansion. The initial outlay would
be $11 comma 300 comma 000, and the project would generate cash
flows of $1 comma 150 comma 000 per year for 20 years. The
appropriate discount rate is 6.8 percent.
a. Calculate the NPV.
b. Calculate the PI.
c. Calculate...
(Related to Checkpoint 11.6) (Calculating MIRR) The Dunder Muffin Company is considering purchasing a new commercial...
(Related to Checkpoint 11.6) (Calculating MIRR) The Dunder
Muffin Company is considering purchasing a new commercial oven that
costs $320 comma 000. This new oven will produce cash inflows of
$165 comma 000 at the end of Years 1 through 10. In addition to
the cash inflows, at the end of Year 5 there will be a net cash
outflow of $245 comma 000. The company has a weighted average cost
of capital of 11.8 percent. What is the MIRR...
(Related to Checkpoint 12.1) (Calculating project cash flows and NPV) You are considering expanding your product...
(Related to Checkpoint
12.1) (Calculating project cash flows and
NPV) You are considering expanding your product line that
currently consists of skateboards to include gas-powered
skateboards, and you feel you can sell
12 comma 00012,000
of these per year for
1010
years (after which time this project is expected to shut down
with solar-powered skateboards taking over). The gas skateboards
would sell for
$130130
each with variable costs of
$4545
for each one produced, and annual fixed costs associated with...
Related to Checkpoint 12.1) (Calculating project cash flows and NPV) You are considering expanding your product...
Related to Checkpoint 12.1) (Calculating project cash flows
and NPV) You are considering expanding your product line that
currently consists of skateboards to include gas-powered
skateboards, and you feel you can sell 8 comma 000 of these per
year for 10 years (after which time this project is expected to
shut down with solar-powered skateboards taking over). The gas
skateboards would sell for $120 each with variable costs of $25
for each one produced, and annual fixed costs associated with...
(Related to Checkpoint 12.1) (Calculating project cash flows and NPV) You are considering expanding your product...
(Related to Checkpoint 12.1) (Calculating project cash flows
and NPV) You are considering expanding your product line that
currently consists of skateboards to include gas-powered
skateboards, and you feel you can sell 9 000 of these per year for
10 years (after which time this project is expected to shut down
with solar-powered skateboards taking over). The gas skateboards
would sell for $80 each with variable costs of $35 for each one
produced an annual fixed cost associated with production...
(Related to Checkpoint 12.1) (Calculating project cash flows and NPV) You are considering expanding your product...
(Related to Checkpoint 12.1) (Calculating project cash flows
and NPV) You are considering expanding your product line that
currently consists of skateboards to include gas-powered
skateboards, and you feel you can sell 9 comma 000 of these per
year for 10 years (after which time this project is expected to
shut down with solar-powered skateboards taking over). The gas
skateboards would sell for $130 each with variable costs of $30
for each one produced, and annual fixed costs associated with...
(Related to Checkpoint 18.2) (Calculating the cost of short-term financing) The R. Morin Construction Company needs...
(Related to Checkpoint 18.2) (Calculating the cost of
short-term financing) The R. Morin Construction Company needs to
borrow $90,000 to help finance the cost of a new $135,000
hydraulic crane used in the firm's commercial construction
business. The crane will pay for itself in one year, and the firm
is considering the following alternatives for financing its
purchase: Alternative A. The firm's bank has
agreed to lend the $90,000 at a rate of 12 percent. Interest would
be discounted, and...
Defining capital structure weights) In August 2015 the capital structure of the Emerson Electric Corporation (EMR)...
Defining capital structure weights) In August 2015 the capital
structure of the Emerson Electric Corporation (EMR) (measured in
book and market values) was as follows: ($ Millions) Book Value
Market Value Short-term debt $2 comma 607 $2 comma 607
Long-term debt 4 comma 224 4 comma 224 Common equity Modifying 8
comma 108 with underline Modifying 35 comma 789 with underline
Total capital Modifying $ 14 comma 939 with double underline
Modifying $ 42 comma 620...
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