FYI: THIS IS A NEW PROBLEM WITH NEW A SET OF DATA.. PLEASE DO NOT PROVIDE OLD ANSWERS.
Tom Scott is the owner, president, and primary salesperson for
Scott Manufacturing. Because of this, the company's profits are
driven by the amount of work Tom does. If he works 40 hours each
week, the company's EBIT will be $595,000 per year; if he works a
50-hour week, the company's EBIT will be $715,000 per year. The
company is currently worth $3.65 million. The company needs a cash
infusion of $1.75 million, and it can issue equity or issue debt
with an interest rate of 7 percent. Assume there are no corporate
taxes.
a. What are the cash flows to Tom under each
scenario? (Enter your answers in dollars, not millions of
dollars, e.g. 1,234,567. Do not round intermediate
calculations.)
Scenario-1
Debt issue:
| Cash flows | |
| 40-hour week | $ |
| 50-hour week | $ |
Scenario-2
Equity issue:
| Cash flows | |
| 40-hour week | $ |
| 50-hour week | $ |
b. Under which form of financing is Tom likely to
work harder?
__________Debt issue
or
__________Equity issue
In: Finance
Gladstone Corporation is about to launch a new product. Depending on the success of the new product, Gladstone may have one of four values next year: $ 152 million, $ 140 million, $ 95 million, and $ 84 million. These outcomes are all equally likely, and this risk is diversifiable. Suppose the risk-free interest rate is 5 % and that, in the event of default, 27 % of the value of Gladstone's assets will be lost to bankruptcy costs. (Ignore all other market imperfections, such as taxes.) a. What is the initial value of Gladstone's equity without leverage? Now suppose Gladstone has zero-coupon debt with a $ 100 million face value due next year. b. What is the initial value of Gladstone's debt? c. What is the yield-to-maturity of the debt? What is its expected return? d. What is the initial value of Gladstone's equity? What is Gladstone's total value with leverage? Suppose Gladstone has 10 million shares outstanding and no debt at the start of the year. e. If Gladstone does not issue debt, what is its share price?
f. If Gladstone issues debt of $ 100 million due next year and uses the proceeds to repurchase shares, what will its share price be? Why does your answer differ from that in part
(e)?
In: Finance
Gladstone Corporation is about to launch a new product. Depending on the success of the new? product, Gladstone may have one of four values next? year: $ 153 ?million, $ 139 ?million, $ 95 ?million, and $ 79 million. These outcomes are all equally? likely, and this risk is diversifiable. Suppose the? risk-free interest rate is 5 % and? that, in the event of? default, 30 % of the value of? Gladstone's assets will be lost to bankruptcy costs.? (Ignore all other market? imperfections, such as? taxes.)
a. What is the initial value of? Gladstone's equity without? leverage? Now suppose Gladstone has? zero-coupon debt with a $ 100 million face value due next year. round to two decimal place
b. What is the initial value of? Gladstone's debt? round to two decimal place
c. What is the? yield-to-maturity of the? debt %? round to two decimal place .
What is its expected? return % ? round to the nearest integer
d. What is the initial value of? Gladstone's equity? round to two decimal place
What is? Gladstone's total value with? leverage? round to two decimal place
Suppose Gladstone has 10 million shares outstanding and no debt at the start of the year.
e. If Gladstone does not issue? debt, what is its share? price? round to the nearest cent
f. If Gladstone issues debt of $ 100 million due next year and uses the proceeds to repurchase? shares, what will its share price? be? round to nearest cent
Why does your answer differ from that in part ?(e?)?
In: Finance
FYI: THIS IS A NEW SET OF PROBLEM WITH A NEW SET OF DATA..... PLEASE DO NOT PROVIDE OLD ANSWERS
Fly-By-Night Couriers is analyzing the possible acquisition of
Flash-in-the-Pan Restaurants. Neither firm has debt. The forecasts
of Fly-By-Night show that the purchase would increase its annual
aftertax cash flow by $310,000 indefinitely. The current market
value of Flash-in-the-Pan is $7 million. The current market value
of Fly-By-Night is $16 million. The appropriate discount rate for
the incremental cash flows is 10 percent. Fly-By-Night is trying to
decide whether it should offer 35 percent of its stock or $10
million in cash to Flash-in-the-Pan.
a. What is the synergy from the merger?
(Do not round intermediate calculations. Enter your answer
in dollars, not millions of dollars, e.g.,
1,234,567.)
Synergy value
$
b. What is the value of Flash-in-the-Pan to
Fly-By-Night? (Do not round intermediate calculations.
Enter your answer in dollars, not millions of dollars, e.g.,
1,234,567.)
Value
$
c. What is the cost to Fly-By-Night of each
alternative? (Do not round intermediate calculations. Enter
your answer in dollars, not millions of dollars, e.g.,
1,234,567.)
| Cost of cash | $ | |
| Cost of stock | $ | |
d. What is the NPV to Fly-By-Night of each
alternative? (Do not round intermediate calculations. Enter
your answers in dollars, not millions of dollars, e.g.,
1,234,567.)
| NPV of cash | $ | |
| NPV of stock | $ | |
In: Finance
Gladstone Corporation is about to launch a new product. Depending on the success of the new product, Gladstone may have one of four values next year:
$ 155
million,
$ 137
million,
$ 96
million, and
$ 83
million. These outcomes are all equally likely, and this risk is diversifiable. Suppose the risk-free interest rate is
5 %
and that, in the event of default,
23 %
of the value of Gladstone's assets will be lost to bankruptcy costs. (Ignore all other market imperfections, such as taxes.)
a. What is the initial value of Gladstone's equity without leverage?
Now suppose Gladstone has zero-coupon debt with a
$ 100
million face value due next year.
b. What is the initial value of Gladstone's debt?
c. What is the yield-to-maturity of the debt? What is its expected return?
d. What is the initial value of Gladstone's equity? What is Gladstone's total value with leverage?
Suppose Gladstone has 10 million shares outstanding and no debt at the start of the year.
e. If Gladstone does not issue debt, what is its share price?
f. If Gladstone issues debt of
$ 100
million due next year and uses the proceeds to repurchase shares, what will its share price be? Why does your answer differ from that in part
(e)
In: Finance
An employer is hiring a new employee and wants to ensure that the new hire does not have embarrassing, illegal, or inappropriate postings on Facebook. To qualify for the position, applicants are required to share their Facebook login and password with employer. Is this legal in Oklahoma? Elaborate in your response - please do not give me a yes or not answer. Do all states prohibit this conduct? What is your opinion on Oklahoma law?
In: Economics
Gladstone Corporation is about to launch a new product. Depending on the success of the new product, Gladstone may have one of four values next year: $150 million, $135 million, $90 million, or $80 million. These outcomes are all equally likely, and this risk is diversifiable. Suppose the risk-free interest rate is 5% and that, in the event of default, 25% of the value of Gladstone’s assets will be lost to bankruptcy costs. (Ignore all other market imperfections, such as taxes.).
(a) What is the initial value of Gladstone’s equity without leverage? Now suppose Gladstone has zero-coupon debt with a $100 million face value due next year.
(b) What is the initial value of Gladstone’s debt?
(c) What is the yield-to-maturity of the debt? What is its expected return?
(d) What is Gladstone’s total value with leverage? What is the value of Gladstone’s levered equity? Suppose Gladstone has 10 million shares outstanding and no debt at the start of the year.
(e) If Gladstone does not issue debt, what is its share price?
(f) If Gladstone issues debt with face value $100 million due next year and uses the proceeds to repurchase shares, what will its share price be? Why does your answer differ from that in part (e)?
In: Finance
ABC Ltd is considering the establishment of a new branch in a new shopping centre. The company has been offered a five-year lease by the shopping centre. You have been provided with the following information:
(i) The new branch would require an initial investment of $70,000 for machinery, depreciated at 20% per annum on a straight-line basis. After 5 years the machinery would have a salvage value of $6,000.
(ii) A computer would be required to connect to the company’s central system. This would cost $3,000 and be depreciated over 3 years on a straight-line basis. The computer would have no value at the end of 5 years.
(iii) Sales are projected to be $250,000 per annum.
(iv) Recurring costs of the new branch would be:
Staffing $90,000 per annum.
Rent (payable in advance) $48,000 per annum.
Light and power $18,000 per annum.
Inventories (fabric, thread, small tools etc.) $12,000 per annum.
A proportion of head office costs amounting to $10,000 per annum.
(v) Last year the company had carried out a market research which suggested that the new branch would be viable and this research cost was $20,000.
(vi) The company pays tax at 30% and its after-tax cost of capital is 15% per annum.
(vii) The company’s bank has advised that it would charge 10% per annum for a five-year loan to fund the set-up of the new branch. Available earnings are not enough to fund the project. The company would borrow the balance amounting to $50,000 from the bank.
Prepare the cash flow table (which incorporates taxes and includes initial investment, operating and terminal cash flows) for the project using the information given above. Calculate the net present value (NPV) payback period for the project. Should ABC Ltd go ahead with the new branch?
In: Finance
Kerfuffle Corporation is considering the purchase of a new computer system. The cost for the new system, including set-up and delivery costs of $20,000, will be $2 million. The new system will provide annual before-tax cost savings of $650,000 for the next five years. The increased efficiency of the new system will lower net working capital by $150,000 today. The CCA rate on the new system will be 30%. At the end of five years, the system can be salvaged for $125,000. The firm’s required rate of return is 15%, and its marginal tax rate is 35%. What is the NPV of this cost-cutting project?
Select one: a. –$24,412.99 b. –$22,882.55 c. $50,258.43 d. $62,147.09 e. $63,385.37
In: Finance
Gladstone Corporation is about to launch a new product. Depending on the success of the new product, Gladstone may have one of four values next year:
$ 153
million,
$ 131
million,
$ 96
million, and
$ 85
million. These outcomes are all equally likely, and this risk is diversifiable. Gladstone will not make any payouts to investors during the year. Suppose the risk-free interest rate is
4.7 %
and assume perfect capital markets.
a. What is the initial value of Gladstone's equity without leverage?
Now suppose Gladstone has zero-coupon debt with a
$ 100
million face value due next year.
b. What is the initial value of Gladstone's debt?
c. What is the yield-to-maturity of the debt? What is its expected return?
d. What is the initial value of Gladstone's equity? What is Gladstone's total value with leverage?
In: Finance