Midterm 1 Practice Problems
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Course
470
Subject
Finance
Date
Apr 3, 2024
Type
xlsx
Pages
40
Uploaded by ChiefWaterBuffaloMaster1060
Problem 1
a
b
c
d
e
EQUINOX CORP
b. INCOME STATEMENT ($ millions)
2021
Assumptions
Sales
$916.987 15%
Cost of Goods Sold
357.625 44%
Gross Profit
559.362 Selling, General, & Administrative Expense
449.324 41%
Operating Income
110.038 Depreciation & Amortization
41.264 30%
Operating Profit
68.774 Interest Expense
18.733 10%
Pretax Income
50.041 Total Income Taxes
17.514 20%
Net income
$32.527 Dividends $16.263 50%
Shares Outstanding (in millions) 10.00 Below are the 2017 financial statements for Equinox Corp. Also appearing are managemen
individual financial statement items will vary in the future. The company expects sales to gr
finances all of its needs with 10-year long-term debt at 10% interest.
Prepare a forcast for Equinox Corporation assuming that long-term debt and interest expense
the external funding required for 2022. (Be sure to enable interative calculation in Excel.) Ho
the company need in under these assumptions? Prepare a one way table to show the amount of long term debt needed in 2022 based on proje
15%, 20% 25% and 30%
Why do companies set up pro-forma statements? Explain at least three ways companies use statements. Below the forecasted income statement and balance sheet for for 2022, calcuate key results free cash flow, ROE, EPS and Debt to Equity
BALANCE SHEET ($ millions)
ASSETS
Cash & Equivalents
$18.340 2%
Account Receivable
119.208 13%
Inventories
45.849 5%
Prepaid Expenses
9.339 no change
Other Current Assets
55.019 6%
Total Current Assets
247.756 Net Property, Plant, & Equipment
137.548 15%
Intangible Assets
9.415 no change
Other Assets
45.849 5%
TOTAL ASSETS
$440.568 LIABILITIES
Accounts Payable
$55.019 6%
Accrued Expenses
45.849 5%
Other Current Liabilities
3.663 no change
Total Current Liabilities
104.532 Long Term Debt
214.836 PLUG AMOUNT
Total Liabilities
319.368 EQUITY
Common Stock
1.702 no change
Capital Surplus
55.513 no change
Retained Earnings
222.044 + addition to Ret. Earnings
Less: Treasury Stock
158.059 no change
Total Equity
121.200 TOTAL LIABILITIES & EQUITY
$440.568
Forcast for 2022
growth in sales
1,054.535 First thing percentage of sales
463.996 590.540 percentage of sales
432.360 158.180 percentage of net PP&E
47.454 110.726 percentage of long-term debt
22.780 87.946 percentage of pretax income
17.589 70.357 same payout ratio
35.178 no change 10.000 nt’s forecasts for how row 15% next year. Equinox e increase in order to make up ow much long term debt does ected sales incresase of 10%, pro-forma financial 1.
Overall business planning 2.
We want a
see if this is what we want moving forward based on the projections, i.e,
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percentage of sales
21.091 percentage of sales
137.090 percentage of sales
52.727 9.339 percentage of sales
63.272 283.518 percentage of sales
158.180 9.415 percentage of sales
52.727 503.840 percentage of sales
63.272 percentage of sales
52.727 3.663 119.662 227.800 347.462 1.702 55.513 257.223 158.059 156.379 503.840 Part e
Forcasted results for 2022
Free Cash Flow (FCF)
$ 88.58 Return on Invested Capital (ROIC)
0.33
Earnings Per Share (EPS)
$ 7.04 Debt/Equity
2.22
to do Part C - One way table
One Way Table Projected % increase in Sales Long Term Debt Needed in 2022
$ 227.80 10% 15% 20% 25% 30% a plan so that we can benchmark against it moving forward 3.
We can run ratios on the plan to 4.
We can do sensitivitity analysis
88.5809721437062
47.454 (20.632)
68.086
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Problem 2 a.
Calculate Maritimes sustainable and actual growth rates in these years. b.
What do these numbers suggest to you?
MARITIME CO.
INCOME STATEMENT ($ millions
Actual 2017
2018
2019
Sales 582.762 652.693 731.017 Cost of Goods Sold 240.828 254.550 285.096 Gross Profit 341.934 398.143 445.920 Selling, General, & Administrative Exp. 257.507 319.820 358.198 Operating Income Before Deprec. 84.427 78.323 87.722 Depreciation & Amortization 25.221 29.371 32.896 Operating Profit 59.206 48.952 54.826 Interest Expense 16.430 18.636 18.801 Pretax Income 42.776 30.316 36.025 Total Income Taxes 14.971 10.611 12.609 Net Income 27.805 19.705 23.416 BALANCE SHEET ($ millions) ASSETS Cash & Equivalents 7.152 13.054 14.620 Account Receivable 70.538 84.850 95.032 Inventories 39.033 32.635 36.551 Prepaid Expenses 9.339 9.339 9.339 Other Current Assets 27.076 39.162 43.861 Total Current Assets 153.138 179.039 199.403 Net Property, Plant, & Equipment 81.648 97.904 109.652 Intangible Assets 9.415 9.415 9.415 Other Assets 24.642 32.635 36.551 TOTAL ASSETS 268.843 318.993 355.022 LIABILITIES Accounts Payable 36.951 39.162 43.861 Accrued Expenses 31.206 32.635 36.551 Other Current Liabilities 3.663 3.663 3.663 Total Current Liabilities 71.820 75.459 84.075 Long Term Debt 157.720 186.363 188.010 Accrued Wages 21.418 19.581 21.930 Total Liabilities 250.958 281.403 294.015
EQUITY Common Stock 1.702 1.702 1.702 Capital Surplus 55.513 55.513 55.513 Retained Earnings 118.729 138.434 161.851 Less: Treasury Stock 158.059 158.059 158.059 Total Equity 17.885 37.590 61.007 TOTAL LIABILITIES & EQUITY 268.843 318.993 355.022 Change in Retained Earnings 19.7 23.4 Net Income 19.705 23.416
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s) Forecast 2020
2021
2022
a. 818.739 916.987 1,027.026 319.308 357.625 400.540 499.431 559.362 626.486 401.182 449.324 503.243 98.249 110.038 123.243 36.843 41.264 46.216 61.405 68.774 77.027 18.841 18.733 18.446 42.564 50.041 58.581 b. 14.897 17.514 20.503 27.667 32.527 38.078 16.375 18.340 20.541 106.436 119.208 133.513 40.937 45.849 51.351 9.339 9.339 9.339 49.124 55.019 61.622 222.211 247.756 276.366 122.811 137.548 154.054 9.415 9.415 9.415 40.937 45.849 51.351 395.374 440.568 491.186 49.124 55.019 61.622 40.937 45.849 51.351 3.663 3.663 3.663 93.724 104.532 116.636 188.414 187.327 184.462 24.562 27.510 30.811 306.701 319.368 331.908
1.702 1.702 1.702 55.513 55.513 55.513 189.517 222.044 260.122 158.059 158.059 158.059 88.673 121.200 159.278 395.374 440.568 491.186 27.7 32.5 38.1 27.667 32.527 38.078
2018
2019
2020
2021
2022
Profit margin
3.0%
3.2%
3.4%
3.5%
3.7% =H22/H1
Retention ratio
1.0
1.0
1.0
1.0
1.0 =H55/H5
Asset turnover
2.0
2.1
2.1
2.1
2.1 =H12/H3
Financial leverage (Equity Multiplier) 17.8
9.4
6.5
5.0
4.1 =H35/G5
Sustainable growth rate
110.2%
62.3%
45.4%
36.7%
31.4% =PRODU
Actual growth rate
12.0%
12.0%
12.0%
12.0%
12.0% =H12/G1
Sustainable - actual growth rate
98.2%
50.3%
33.4%
24.7%
19.4% =P16-P17
Generating more cash than they needed for their sustainable growth rate. The firm has extra cash and they have been redeeming (buying back) debt with that extra cash. They have not been using it to pay out dividends.
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12 56 35 51 UCT(P12:P15) 12-1 7
a.
Calculate the companies sales growth over the period b.
Calculate the missing ratios in the table below c
What do the complete set of ratios indicate about company’s profitablily, management of asset
BALENTRINE CORP
BALANCE SHEET ($ millions)
2012
ASSETS
Cash & Short-Term Investments
263.001 Net Receivables
19.276 Inventories
416.603 Prepaid Expenses
0.000 Other Current Assets
30.732 Total Current Assets
729.612 Gross Plant, Property & Equipment
611.957 Accumulated Depreciation
342.371 Net Plant, Property & Equipment
269.586 Intangibles
63.073 Other Assets
61.003 TOTAL ASSETS
1,123.274 LIABILITIES
Long Term Debt Due In One Year
0.000 Accounts Payable
125.064 Taxes Payable
21.086 Accrued Expenses
72.531 Other Current Liabilities
19.404 Total Current Liabilities
238.085 Long Term Debt
207.750 Deferred Taxes
24.400 Other Liabilities
25.506 TOTAL LIABILITIES
495.741 EQUITY
Common Stock
0.671 Capital Surplus
255.214 Retained Earnings
641.558 Less: Treasury Stock
269.910 TOTAL EQUITY
627.533
TOTAL LIABILITIES & EQUITY
1,123.274 Common Shares Outstanding
53.069 INCOME STATEMENT ($ millions, except p
2012
Sales
1,724.898 Cost of Goods Sold
965.889 Gross Profit
759.009 Selling, General, & Administrative Exp.
531.839 Operating Income Before Deprec.
227.170 Depreciation, Depletion, & Amortization
61.874 Operating Profit
165.296 Interest Expense
5.888 Non-Operating Income/Expense
3.280 Special Items
0.000 Pretax Income
162.688 Total Income Taxes
58.785 Income Before Extraordinary
Items & Discontinued Operations
103.903 Savings Due to Common Stock Equiv.
0.000 Adjusted Net Income
103.903
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ts and debt management and liquidity? a. Year by Year sales growth 2013
2014
2015
2016
b.
Profitability Ratios
355.051 479.319 528.129 726.178 Gross margin 26.023 38.352 61.615 92.423 Profit margin 562.414 759.259 1,062.963 1,594.444 Return on equity 0.000 0.000 0.000 0.000 Return on assets 41.488 56.009 78.413 117.619 Return on invested capital
984.976 1,332.940 1,731.120 2,530.663 Turnover-Control Ratios 826.142 1,115.292 1,561.408 2,342.112 Collection period (days)
462.201 623.971 873.560 1,310.339 Days' sales in cash
363.941 491.320 687.849 1,031.773 Payables period
85.149 114.951 160.931 241.396 Inventory turnover
82.354 111.178 155.649 233.474 Asset turnover
1,516.420 2,050.389 2,735.548 4,037.306 Fixed-asset turnover
Liquidity and Leverage Ratios 0.000 0.000 0.000 0.000 Current ratio
168.836 227.929 352.086 594.145 Acid test
28.466 38.429 53.801 80.701 Assets to equity
97.917 132.188 185.063 277.594 Debt to assets
26.195 35.364 49.509 74.264 Debt to equity
321.415 433.910 640.459 1,026.705 Times interest earned
361.683 574.364 904.541 1,678.801 c.
Comments
32.940 44.469 62.257 93.385 34.433 46.485 65.079 97.618 750.471 1,099.228 1,672.336 2,896.509 0.671 0.671 0.671 0.671 255.214 255.214 255.214 255.214 779.974 965.186 1,077.238 1,154.822 269.910 269.910 269.910 269.910 765.949 951.161 1,063.213 1,140.797
1,516.420 2,050.389 2,735.548 4,037.306 53.919 51.479 51.918 52.288 per share)
2013
2014
2015
2016
2,328.612 3,143.627 4,401.077 6,601.616 1,303.950 1,760.333 2,640.646 4,159.018 1,024.662 1,383.294 1,760.431 2,442.598 717.983 969.277 1,408.345 2,046.501 306.680 414.017 352.086 396.097 83.530 112.765 157.872 236.807 223.150 301.252 194.215 159.290 10.850 17.231 27.136 50.364 4.428 5.978 8.369 12.553 0.000 0.000 0.000 0.000 216.727 289.999 175.447 121.479 78.311 104.787 63.395 43.895 138.416 185.212 112.052 77.584 0.000 0.000 0.000 0.000 138.416 185.212 112.052 77.584
2012
2013
2014
2015
2016
35.0%
35.0%
10.2%
37.5%
2012
2013
2014
2015
2016
44.0%
44.0%
44.0%
40.0%
37.0%
6.0%
5.9%
5.9%
2.5%
1.2%
16.6%
18.1%
19.5%
10.5%
6.8%
9.3%
9.1%
9.0%
4.1%
1.9%
12.9%
12.9%
12.9%
6.6%
3.9%
4.1 4.1 4.5 5.1 5.1 55.7 55.7 55.7 43.8 40.2 47.3 47.3 47.3 48.7 52.1 2.3 2.3 2.3 2.5 2.6 1.5 1.5 1.5 1.6 1.6 6.4 6.4 6.4 6.4 6.4 3.1 3.1 3.1 2.7 2.5 1.3 1.3 1.3 1.0 0.9 1.8 2.0 2.2 2.6 3.5 44.1%
49.5%
53.6%
61.1%
71.7%
79.0%
98.0%
115.6%
157.3%
253.9%
28.1 20.6 17.5 7.2 3.2
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a.
a.
Estimate Montego's cost of equity capital. b.
Estimate Montego's cost of debt
c.
Facts and Assumptions
Yield to maturity on long-term government bonds
4.54%
Coupon rate on company long-term bonds
7.50%
b.
Market price of risk, or risk premium
6.30%
Estimated company equity beta
1.05 Stock price per share
$25.97 Number of shares outstanding (million)
681.2 Book value of equity (million)
$4,965 Book value of interest-bearing debt (million)
$6,674 Number of bonds 6,674 Price at which bonds are selling $1,050 c.
Tax rate
35.0%
Number of Years until bonds mature 25 recreational equipment, appear below. The company has one issue of bonds Using this information, answer the following questions.
Estimate Montego's weighted-average cost of capital. Prepare a table showing the relevant variables.
USE CAPM 11.16%
They already give you the market risk premium. You don't have to calculate it!
settement Err:502
rate
7.07%
maturity
nper
25 rate pmt
$75.00 pr
pv
($1,050)
redemption fv
1000
frequency
Source
Weighted Cost
Debt
$7,008 28.4%
4.6%
1.3%
Equity
$17,691 71.6%
11.16%
8.0%
Total
$24,698 WACC = 9.3%
Check
9.3% =SUMPRODUCT(H19:H2
Amount
($ millions)
Percentage of Total
Cost after tax
14.14%
20,I19:I20)
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Problem 1
a
b
c
d
e
EQUINOX CORP
b. INCOME STATEMENT ($ millions)
2021
Assumptions
Sales
$916.987 15%
Cost of Goods Sold
357.625 44%
Gross Profit
559.362 Selling, General, & Administrative Expense
449.324 41%
Operating Income
110.038 Depreciation & Amortization
41.264 30%
Operating Profit
68.774 Interest Expense
18.733 10%
Pretax Income
50.041 Total Income Taxes
17.514 20%
Net income
$32.527 Dividends $16.263 50%
Shares Outstanding (in millions) 10.00 Below are the 2017 financial statements for Equinox Corp. Also appearing are ma
individual financial statement items will vary in the future. The company expects s
Equinox finances all of its needs with 10-year long-term debt at 10% interest.
Prepare a forcast for Equinox Corporation assuming that long-term debt and interes
make up the external funding required for 2022. (Be sure to enable interative calcul
long term debt does the company need in under these assumptions? Prepare a one way table to show the amount of long term debt needed in 2022 based
of 10%, 15%, 20% 25% and 30%
Why do companies set up pro-forma statements? Explain at least three ways compa
statements. Below the forecasted income statement and balance sheet for for 2022, calcuate ke
projections, i.e, free cash flow, ROE, EPS and Debt to Equity
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BALANCE SHEET ($ millions)
ASSETS
Cash & Equivalents
$18.340 2%
Account Receivable
119.208 13%
Inventories
45.849 5%
Prepaid Expenses
9.339 Other Current Assets
55.019 6%
Total Current Assets
247.756 Net Property, Plant, & Equipment
137.548 15%
Intangible Assets
9.415 Other Assets
45.849 5%
TOTAL ASSETS
$440.568 LIABILITIES
Accounts Payable
$55.019 6%
Accrued Expenses
45.849 5%
Other Current Liabilities
3.663 Total Current Liabilities
104.532 Long Term Debt
214.836 Total Liabilities
319.368 EQUITY
Common Stock
1.702 Capital Surplus
55.513 Retained Earnings
222.044 Less: Treasury Stock
158.059 Total Equity
121.200 TOTAL LIABILITIES & EQUITY
$440.568
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Forcast for 2022
growth in sales
1,054.535 percentage of sales
463.996 590.540 percentage of sales
432.360 158.180 percentage of net PP&E
47.454 110.726 percentage of long-term debt
22.780 87.946 percentage of pretax income
17.589 70.357 same payout ratio
35.178 no change 10.000 anagement’s forecasts for how sales to grow 15% next year. st expense increase in order to lation in Excel.) How much d on projected sales incresase anies use pro-forma financial ey results based on the
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percentage of sales
21.091 percentage of sales
137.090 percentage of sales
52.727 no change
9.339 percentage of sales
63.272 283.518 percentage of sales
158.180 no change
9.415 percentage of sales
52.727 503.840 percentage of sales
63.272 percentage of sales
52.727 no change
3.663 119.662 PLUG AMOUNT
227.800 347.462 no change
1.702 no change
55.513 + addition to Ret. Earnings
257.223 no change
158.059 156.379 503.840 Part e
Forcasted results for 2022
Free Cash Flow (FCF)
$ 88.58 Return on Invested Capital (ROIC)
0.33
Earnings Per Share (EPS)
$ 7.04 Debt/Equity
2.22
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Part C - One way table
One Way Table Projected % increase in Sales Long Term Debt Needed in 2022
$ 227.80 10% 15% 20% 25% 30%
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88.5809721437062
47.454 (20.632)
68.086
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Problem 2 a.
Calculate Maritimes sustainable and actual growth rates in these years. b.
What do these numbers suggest to you?
MARITIME CO.
INCOME STATEMENT ($ millions
Actual 2017
2018
2019
Sales 582.762 652.693 731.017 Cost of Goods Sold 240.828 254.550 285.096 Gross Profit 341.934 398.143 445.920 Selling, General, & Administrative Exp. 257.507 319.820 358.198 Operating Income Before Deprec. 84.427 78.323 87.722 Depreciation & Amortization 25.221 29.371 32.896 Operating Profit 59.206 48.952 54.826 Interest Expense 16.430 18.636 18.801 Pretax Income 42.776 30.316 36.025 Total Income Taxes 14.971 10.611 12.609 Net Income 27.805 19.705 23.416 BALANCE SHEET ($ millions) ASSETS Cash & Equivalents 7.152 13.054 14.620 Account Receivable 70.538 84.850 95.032 Inventories 39.033 32.635 36.551 Prepaid Expenses 9.339 9.339 9.339 Other Current Assets 27.076 39.162 43.861 Total Current Assets 153.138 179.039 199.403 Net Property, Plant, & Equipment 81.648 97.904 109.652 Intangible Assets 9.415 9.415 9.415 Other Assets 24.642 32.635 36.551 TOTAL ASSETS 268.843 318.993 355.022 LIABILITIES Accounts Payable 36.951 39.162 43.861 Accrued Expenses 31.206 32.635 36.551 Other Current Liabilities 3.663 3.663 3.663 Total Current Liabilities 71.820 75.459 84.075 Long Term Debt 157.720 186.363 188.010 Accrued Wages 21.418 19.581 21.930 Total Liabilities 250.958 281.403 294.015
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EQUITY Common Stock 1.702 1.702 1.702 Capital Surplus 55.513 55.513 55.513 Retained Earnings 118.729 138.434 161.851 Less: Treasury Stock 158.059 158.059 158.059 Total Equity 17.885 37.590 61.007 TOTAL LIABILITIES & EQUITY 268.843 318.993 355.022 Change in Retained Earnings 19.7 23.4 Net Income 19.705 23.416
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s) Forecast 2020
2021
2022
a. 818.739 916.987 1,027.026 319.308 357.625 400.540 499.431 559.362 626.486 401.182 449.324 503.243 98.249 110.038 123.243 36.843 41.264 46.216 61.405 68.774 77.027 18.841 18.733 18.446 42.564 50.041 58.581 b. 14.897 17.514 20.503 27.667 32.527 38.078 16.375 18.340 20.541 106.436 119.208 133.513 40.937 45.849 51.351 9.339 9.339 9.339 49.124 55.019 61.622 222.211 247.756 276.366 122.811 137.548 154.054 9.415 9.415 9.415 40.937 45.849 51.351 395.374 440.568 491.186 49.124 55.019 61.622 40.937 45.849 51.351 3.663 3.663 3.663 93.724 104.532 116.636 188.414 187.327 184.462 24.562 27.510 30.811 306.701 319.368 331.908
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1.702 1.702 1.702 55.513 55.513 55.513 189.517 222.044 260.122 158.059 158.059 158.059 88.673 121.200 159.278 395.374 440.568 491.186 27.7 32.5 38.1 27.667 32.527 38.078
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2018
2019
2020
2021
2022
Profit margin
3.0%
3.2%
3.4%
3.5%
3.7%
Retention ratio
1.0
1.0
1.0
1.0
1.0
Asset turnover
2.0
2.1
2.1
2.1
2.1
Financial leverage (Equity Multiplier) 17.8
9.4
6.5
5.0
4.1
Sustainable growth rate
110.2%
62.3%
45.4%
36.7%
31.4%
Actual growth rate
12.0%
12.0%
12.0%
12.0%
12.0%
Sustainable - actual growth rate
98.2%
50.3%
33.4%
24.7%
19.4%
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a.
Calculate the companies sales growth over the period b.
Calculate the missing ratios in the table below c
What do the complete set of ratios indicate about company’s profitablily, management of asset
BALENTRINE CORP
BALANCE SHEET ($ millions)
2012
ASSETS
Cash & Short-Term Investments
263.001 Net Receivables
19.276 Inventories
416.603 Prepaid Expenses
0.000 Other Current Assets
30.732 Total Current Assets
729.612 Gross Plant, Property & Equipment
611.957 Accumulated Depreciation
342.371 Net Plant, Property & Equipment
269.586 Intangibles
63.073 Other Assets
61.003 TOTAL ASSETS
1,123.274 LIABILITIES
Long Term Debt Due In One Year
0.000 Accounts Payable
125.064 Taxes Payable
21.086 Accrued Expenses
72.531 Other Current Liabilities
19.404 Total Current Liabilities
238.085 Long Term Debt
207.750 Deferred Taxes
24.400 Other Liabilities
25.506 TOTAL LIABILITIES
495.741 EQUITY
Common Stock
0.671 Capital Surplus
255.214 Retained Earnings
641.558 Less: Treasury Stock
269.910 TOTAL EQUITY
627.533
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TOTAL LIABILITIES & EQUITY
1,123.274 Common Shares Outstanding
53.069 INCOME STATEMENT ($ millions, except p
2012
Sales
1,724.898 Cost of Goods Sold
965.889 Gross Profit
759.009 Selling, General, & Administrative Exp.
531.839 Operating Income Before Deprec.
227.170 Depreciation, Depletion, & Amortization
61.874 Operating Profit
165.296 Interest Expense
5.888 Non-Operating Income/Expense
3.280 Special Items
0.000 Pretax Income
162.688 Total Income Taxes
58.785 Income Before Extraordinary
Items & Discontinued Operations
103.903 Savings Due to Common Stock Equiv.
0.000 Adjusted Net Income
103.903
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ts and debt management and liquidity? a. Year by Year sales growth 2013
2014
2015
2016
b.
Profitability Ratios
355.051 479.319 528.129 726.178 Gross margin 26.023 38.352 61.615 92.423 Profit margin 562.414 759.259 1,062.963 1,594.444 Return on equity 0.000 0.000 0.000 0.000 Return on assets 41.488 56.009 78.413 117.619 Return on invested capital
984.976 1,332.940 1,731.120 2,530.663 Turnover-Control Ratios 826.142 1,115.292 1,561.408 2,342.112 Collection period (days)
462.201 623.971 873.560 1,310.339 363.941 491.320 687.849 1,031.773 Payables period
85.149 114.951 160.931 241.396 Inventory turnover
82.354 111.178 155.649 233.474 Asset turnover
1,516.420 2,050.389 2,735.548 4,037.306 Fixed-asset turnover
Liquidity and Leverage Ratios 0.000 0.000 0.000 0.000 Current ratio
168.836 227.929 352.086 594.145 Acid test
28.466 38.429 53.801 80.701 Assets to equity
97.917 132.188 185.063 277.594 Debt to assets
26.195 35.364 49.509 74.264 Debt to equity
321.415 433.910 640.459 1,026.705 Times interest earned
361.683 574.364 904.541 1,678.801 c.
Comments
32.940 44.469 62.257 93.385 34.433 46.485 65.079 97.618 750.471 1,099.228 1,672.336 2,896.509 0.671 0.671 0.671 0.671 255.214 255.214 255.214 255.214 779.974 965.186 1,077.238 1,154.822 269.910 269.910 269.910 269.910 765.949 951.161 1,063.213 1,140.797
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1,516.420 2,050.389 2,735.548 4,037.306 53.919 51.479 51.918 52.288 per share)
2013
2014
2015
2016
2,328.612 3,143.627 4,401.077 6,601.616 1,303.950 1,760.333 2,640.646 4,159.018 1,024.662 1,383.294 1,760.431 2,442.598 717.983 969.277 1,408.345 2,046.501 306.680 414.017 352.086 396.097 83.530 112.765 157.872 236.807 223.150 301.252 194.215 159.290 10.850 17.231 27.136 50.364 4.428 5.978 8.369 12.553 0.000 0.000 0.000 0.000 216.727 289.999 175.447 121.479 78.311 104.787 63.395 43.895 138.416 185.212 112.052 77.584 0.000 0.000 0.000 0.000 138.416 185.212 112.052 77.584
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2012
2013
2014
2015
2016
35.0%
35.0%
10.2%
37.5%
2012
2013
2014
2015
2016
44.0%
44.0%
44.0%
40.0%
37.0%
6.0%
5.9%
5.9%
2.5%
1.2%
16.6%
18.1%
19.5%
10.5%
6.8%
9.3%
9.1%
9.0%
4.1%
1.9%
12.9%
12.9%
12.9%
6.6%
3.9%
4.1 4.1 4.5 5.1 5.1 47.3 47.3 47.3 48.7 52.1 2.3 2.3 2.3 2.5 2.6 1.5 1.5 1.5 1.6 1.6 6.4 6.4 6.4 6.4 6.4 3.1 3.1 3.1 2.7 2.5 1.3 1.3 1.3 1.0 0.9 1.8 2.0 2.2 2.6 3.5 44.1%
49.5%
53.6%
61.1%
71.7%
79.0%
98.0%
115.6%
157.3%
253.9%
28.1 20.6 17.5 7.2 3.2
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a.
a.
Estimate Montego's cost of equity capital. b.
Estimate Montego's cost of debt
b.
b.
Facts and Assumptions
Yield to maturity on long-term government bonds
4.54%
Coupon rate on company long-term bonds
7.50%
Market price of risk, or risk premium
6.30%
Estimated company equity beta
1.05 Stock price per share
$25.97 Number of shares outstanding (million)
681.2 Book value of equity (million)
$4,965 b.
Book value of interest-bearing debt (million)
$6,674 Number of bonds 6,674 Price at which bonds are selling $1,050 Tax rate
35.0%
Number of Years until bonds mature 25 recreational equipment, appear below. The company has one issue of bonds Using this information, answer the following questions.
Estimate Montego's weighted-average cost of capital. Prepare a table showing the relevant variables.
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CAPM 0.112 r
7.07%
14.14%
n
25 pv
($1,050)
fv
1000
pmt
75
Source
Weighted Cost
Debt
$7,008 28.4%
4.6%
1.3%
Equity
$17,691 71.6%
11.2%
8.0%
$24,698 WACC = 9.3%
Amount
($ millions)
Percentage of Total
Cost after tax
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