Assume a firm has EBAT of $540,000, and no amortization. It is in a 30 percent...

Assume a firm has EBAT of $540,000, and no amortization. It is in a 30 percent tax bracket. a. Compute its cash flow. Cash flow $ b. Assume it has $540,000 in amortization. Recompute its cash flow. Cash flow $ c. How large a cash flow benefit did the amortization provide? Benefit in cash flow $

Expert Solution

(a)-Free Cash Flow
Particulars	Amount ($)
Earnings Before Amortization & Taxation	5,40,000
Less: Depreciation & Amortization	-
Earnings Before Taxation	5,40,000
Less: Tax at 30%	1,62,000
Earnings After Tax	3,78,000
Add Back: Depreciation & Amortization	-
Free Cash Flow	3,78,000


(b)-Free Cash Flow if the firm has $540,000 in amortization.
Particulars	Amount ($)
Earnings Before Amortization & Taxation	5,40,000
Less: Depreciation & Amortization	5,40,000
Earnings Before Taxation	-
Less: Tax at 30%	-
Earnings After Tax	-
Add Back: Depreciation & Amortization	5,40,000
Free Cash Flow	5,40,000

(c)-Benefit in cash flow
The Benefit in Net Cash Flow will be $162,000 [$540,000 - $378,000]

jeff jeffy answered 1 year ago

(Loan amortization) A firm borrows$20,000 from the bank at 11 percent compounded annually topurchase...

(Loan amortization) A firm borrows $20,000 from the bank at 11 percent compounded annually to purchase some new machinery. This loan is to be repaid in equal installments at the end of each year over the next 12 years. How much will each annual payment be?The amount of each annual payment will be $ (Round to the nearest cent.)

Given the following information for Jalen Inc. Assume the firm has a tax rate of 30%....

Given the following information for Jalen Inc. Assume the firm has a tax rate of 30%. Debt: 250,000 bonds outstanding with 4.5% coupon rate. Par value of $1,000 per bond, 15 years to maturity, selling for 105% of par; the bonds make semi-annual payments. Common stock: 8,500,000 shares outstanding, trading for $55.75 per share. The beta is 1.33. Market: 12% expected return on the market and 3.5% risk free rate. Calculate the weighted average cost of capital (WACC). (Enter percentages...

Assume a firm sells 1M units of its product for $10 and has a 30% gross...

Assume a firm sells 1M units of its product for $10 and has a 30% gross profit margin ($3). Cutting the price to $9.50 might stimulate unit sales by 10%. Will the assumed increase in sales volume offset the decrease in the margin? I know the answer is false but I'm confused as to how. is the new gross profit margin from the cut-price 2.5 or 2.85?

Baggai Enterprises has an ROA of 10 percent, retains 30 percent of earnings, and has an...

Baggai Enterprises has an ROA of 10 percent, retains 30 percent of earnings, and has an equity multiplier of 1.25. Mondale Enterprises also has an ROA of 10 percent, but it retains two-thirds of earnings and has an equity multiplier of 2.00. 1. What are the sustainable dividend growth rates for (A) Baggai Enterprises and (B) Mondale Enterprises? 2. Identify the drivers of the difference in the sustainable growth rates of Baggai Enterprises and Mondale Enterprises.

A stock has had returns of −30 percent, 20 percent, 34 percent, −20 percent, 37 percent,...

A stock has had returns of −30 percent, 20 percent, 34 percent, −20 percent, 37 percent, and 23 percent over the last six years. a.) What are the arithmetic average returns for the stock? b.) What are the geometric average returns for the stock? (4 Points)

BJT Corporation is owned 40 percent by Bill, 30 percent by Jack, and 30 percent by...

BJT Corporation is owned 40 percent by Bill, 30 percent by Jack, and 30 percent by the Trumpet Partnership. Bill and Jack are father and son. Jack has a 10 percent interest in Trumpet Partnership. What is Jack’s total direct and constructive ownership of BJT Corporation under Section 267? a.30 percent. b.100 percent. c.73 percent. d.70 percent. e.33 percent.

A firm has a profit margin of 15 percent on sales of $20,000,000. If the firm...

A firm has a profit margin of 15 percent on sales of $20,000,000. If the firm has debt of $7,500,000, total assets of $22,500,000, and an after-tax interest cost on total debt of 5 percent, what is the firm’s ROA?

The balance sheet and income statement shown below. Note that the firm has no amortization charges,...

The balance sheet and income statement shown below. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Balance Sheet (Millions of $) Assets 2019 Cash and securities $ 2,500 Accounts receivable 11,500 Inventories 16,000 Total current assets $30,000 Net plant and equipment $20,000 Total assets $50,000 Liabilities and Equity Accounts payable $ 9,500 Accruals 5,500...

Firm 1 has a capital structure with 20 percent debt and 80 percent equity. Firm 2’s...

Firm 1 has a capital structure with 20 percent debt and 80 percent equity. Firm 2’s capital structure consists of 50 percent debt and 50 percent equity. Both firms pay 7 percent annual interest on their debt. Finally, suppose that both firms have invested in assets worth $100 million. Required: Calculate the return on equity (ROE) for each firm, assuming the following: a. The return on assets is 3 percent. b. The return on assets is 7 percent. c. The...

A firm has an investment project that will cost the firm $30 million but will generate...

A firm has an investment project that will cost the firm $30 million but will generate $2 million of NPV. Also there is a 5% chance that the firm will lose a lawsuit to employees, and be forced to pay damage of $30 million. Suppose that a liability insurance policy with a $30 million limit has a premium equal to $1.5 million. a. Compute expected claim cost b. Compute the amount of loading on the policy c. Compute the expected...

Question