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7. A review of the degree of financial leverage (DFL) It is December 31. Last year, Water and Power Company (W&P) had sales of $80,000,000, and it forecasts that next year's sales will be $86,400,000. Its fixed costs have been-and are expected to continue to be-$44,000,000, and its variable cost ratio is 10.00%. W&P's capital structure consists of a $15 million bank loan, on which it pays an interest rate of 12%, and 5,000,000 shares of outstanding common equity. The company's profits are taxed at a marginal rate of 35%. The following are the two principal equations that can be used to calculate a firm's DFL value: DFL (at EBIT = $X) Percentage Change in EPS Percentage Change in EBIT Given this information, complete the following sentences: DFL (at EBIT $X) Consider the following statement about DFL, and indicate whether or not it is correct. O True O False EBIT EBIT-Interest- • The company's percentage change in EBIT is • The percentage change in W&P's earnings per share (EPS) is •…

It is December 31. Last year, Galaxy Corporation had sales of $80,000,000, and it forecasts that next year's sales will be $86,400,000. Its fixed costs have been-and are expected to continue to be-$44,000,000, and its variable cost ratio is 10.00 %. Galaxy's capital structure consists of a $15 million bank loan, on which it pays an interest rate of 12%, and 5,000,000 shares of outstanding common equity. The company's profits are taxed at a marginal rate of 35%. The following are the two principal equations that can be used to calculate a firm's DFL value: DFL (at EBIT = $X) = Given this information, complete the following sentences: Percentage Change in EPS Percentage Change in EBIT Consider the following statement about DFL, and indicate whether or not it is correct. 0 0 DFL (at EBITSX) = • The company's percentage change in EBIT is . The percentage change in Galaxy's earnings per share (EPS) is • The degree of financial leverage (DFL) at $86,400,000 is. (Hint: Use the changes in EPS…

The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 34 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Investment Sales revenue Operating costs Depreciation Net working capital spending Net income Year O $27,000 Year 1 $ Cash flow 330 Year 1 $14,000 $14,500 3,000 6,750 380 280 a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) Year 2 Year 2 Year O $-27330 Year 3 3,100 3,200 6,750 6,750 430 330 3069 $15,000 $12,000 2,400 6,750 ? Year 1 $ Year 4 Year 3 b. Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.) 3333 Year 4 $ Year 2 $ c. Suppose the…

The Fleming Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 25 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Investment Sales revenue Operating costs Depreciation Net working capital spending Net income Cash flow $ Year 1 NPV 3,975 $ $ Year 0 Year O 34,000 $ 400 a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) Year 1 $ 17,500 3,700 8,500 450 Year 2 4,275 $ Year 1 5,300 $18,000 Year 2 Year 3 b. Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.) Year 3 4,575 $ Year 2 3,800 3,900 8,500 8,500 500 400 $18,500 $15,500 3,100 8,500 ? Year 4 Year 4…

The Fleming Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 23 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Investment Sales revenue Operating costs Depreciation Net working capital spending Net income $ Year 1 Year O 42,000 480 Year 1 Year 2 Year 3 Year 2 22,500, $21,500 $ 22,000$ 4,500 4,600 4,700 10,500 10,500 10,500 530 580 480 a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) Year 3 Year 4 Year 4 $19,500 3,900 10,500 ?

Colter Steel has $5,650,000 in assets. Temporary current assets $ 3,300,000 Permanent current assets 1,615,000 Fixed assets 735,000 Total assets $ 5,650,000 Short-term rates are 14 percent. Long-term rates are 4 percent. Earnings before interest and taxes are $1,190,000. The tax rate is 30 percent. If long-term financing is perfectly matched (synchronized) with long-term asset needs, and the same is true of short-term financing, what will earnings after taxes be?

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The Fancy Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 21 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Year 1 Year 2 a. Investment Sales revenue Operating costs Depreciation Net working capital spending 305 Year 0 $ 26,400 C. $ 13,500 2,950 6,600 205 Year 3 $15,100 3,125 4,300 6,600 6,600 235 $16,500 155 Year 4 $13,000 2,900 6,600 ? Compute the incremental net income of the investment for each year. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Compute the incremental cash flows of the investment for each year. (A negative amount should be b. indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number,…

A rough rule of thumb for the chemical industry is that 1$ of annual sales requires 1% of fixed capital investment. In a chemical processing plant where this rule applies, the total capital investment is $5,000,000 and the working capital is 15% of the total capital investment. The annual total product cost amounts to $3,000,000. If the income tax rates on gross earnings total 40%, determine the following:(i) Percent of total capital investment returned annually as gross earnings (ii)Percent of total capital investment returned annually as net

Solemn Company has an operating leverage of 2.O. Sales for the current year are $100,000 with a contribution margin of $50,000. Sales are expected to be $150,000 next year. Operating income for the current year can be expected to increase by what amount over the previous year? O $25,000 O None of the above O $75,000 O $50,000

Sales are 150,000. COGS are 100,000.  SG&A Overhead is 20,000. Depreciation is 15,000.  Interest Expense is 10,000.  Capital Expenditures is 15,000.  Net Working Capital is not expected to rise by 1,000.  The tax rate is 20%.  What is FCF?

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Assume a company can buy a new facility that will cost $2,250,000 and is expected to generate $555,000 a year in revenue for the first three years and $325,000 a year in revenue for the next three years. The company's weighted cost of capital (WACC) is 5.5% per year. What is the IRR for this investment? 5.41% 8.23% 6.07%

Sales are 150,000. COGS are 100,000.  SG&A Overhead is 20,000. Depreciation is 15,000.  Interest Expense is 10,000.  Capital Expenditures is 15,000.  Net Working Capital is not expected to rise by 1,000.  The tax rate is 35%.  What is FCF? Is the answer 160,000?

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The directors of Pelta Co are considering a planned investment project costing $25m, payable at the start of the first year of operation. The following information relates to the investment project: Year 1 Year 2 Year 3 Year 4 Sales volume (units/year) 520,000 624,000 717,000 788,000 Selling price ($/unit) 30·00 30·00 30·00 30·00 Variable costs ($/unit) 10·00 10·20 10·61 10·93 Fixed costs ($/year) 700,000 735,000 779,000 841,000. This information needs adjusting to take account of selling price inflation of 4% per year and variable cost inflation of 3% per year. The fixed costs, which are incremental and related to the investment project, are in nominal terms. The year 4 sales volume is expected to continue for the foreseeable future. Pelta Co pays corporation tax of 30% one year in arrears. The company can claim tax-allowable depreciation on a 25% reducing balance basis. The views of the directors of Pelta Co are that all investment projects must be evaluated over four years of…

Calculate the external financing needed given the following financial statements. Assume that all costs, all assets, and accounts payable change proportionally with sales. Sales are projected to grow by 25%. Also assume that the company is operating at full capacity.   Current Statement of Comprehensive Income Sales $50,000 CoGS 30,000 EBDIT 20,000 Depreciation 10,000 EBIT 10,000 Interest expense 5,000 Taxable income 5,000 Taxes (35%) 1,750 Net Income 3,250 Dividends 975 Addition to RE 2,275   Current Statement of Financial Position Cash $8,000 Accounts receivable 22,000 Inventory 30,000 Total current assets 60,000 Fixed assets 90,000 Total assets $150,000 Accounts payable $15,000 Notes payable 5,000 Total current liabilities 20,000 Long-term debt 40,000 Common stock 40,000 Retained earnings 50,000 Total owners’ equity 90,000 Total Liabilities and OE $150,000 Select one answer A- $33,750 B- $34,656.25 C- $30,906.25 D- $37,500 E- $22,500

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1. AAI, Inc., forecasts unit sales for a potential new product as follows: Year Units of Output 95,000 107,000 110,000 The initial investment in Net Working Capital (NWC) is $1,500,000. At the end of the project, the investment in NWC is expected to be fully recovered. Total fixed costs are $1,750,000 each year, variable costs are $280 per unit, and the units are sold at $330 each. The new equipment is expected to cost S4,400,000 and will be depreciated using the 3-year MACRS depreciation schedules (relevant depreciation rates are 33% in year 1, 45% in year 2, 15% in year 3 and 7% in year 4). At the end of three years the equipment can be sold for $100,000. If the new project is taken, there will be a negative effect on the firm's existing products - cash flow from the firm's existing products will decrease by 88,000 on a post-tax basis in years 1, 2, and 3. The tax rate s 40% and AAI Inc's cost ofcapital is 12% Compute the (i) payback period, (ii) NPV, (iii) IRR, and (iv)…

3. The year-end operating costs of a certain machine are estimated to be 120,000 the first year and toincrease by 20,500 each year during its 4-year life.A.) Is the gradient increasing or decreasing?B.) If capital is worth 12% determine the equivalent uniform year-end costs.

Assume a company can buy a new facility that will cost $3,250,000 and is expected to generate $855,000 a year in revenue for the first three years and $425,000 a year in revenue for the next three years. The company's weighted cost of capital (WACC) is 6.5% per year. What is the IRR for this investment? 5.38% 5.88% © 6.00%

mni.4 The Cement Company has revenues of $100,000 in year 1 and it is expected to grow by 15% in year 2 and 25% in year 3. Operating expenses inclusive of depreciation are $75,000 in year 1 and are expected to increase by 10% per year, the depreciation is expected to be calculated on a straight-line method on a piece of equipment that costs $90,000, and the company marginal tax rate is 40 percent. In addition, the Cement Company expects that it will have to add about $8,000 per year to its net working capital in years 1 to 3. Calculate the company's Net (operating) cash flow for years 1, 2, and 3.

The directors of Pelta Co are considering a planned investment project costing $25m, payable at the start of the first year of operation. The following information relates to the investment project:                                                    Year 1            Year 2                        Year 3            Year 4 Sales volume (units/year)  520,000           624,000                       717,000             788,000 Selling price ($/unit)            30.00              30.00                            30.00                 30.00 Variable costs ($/unit)         10.00              10.20                             10.61                 10.93  Fixed costs ($/year)             700, 00           735, 00                         779,000           841,000 This information needs adjusting to take account of selling price inflation of 4% per year and variable cost inflation of 3% per year. The fixed costs, which are incremental and related to the investment project, are in nominal terms.…

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CCC currently has sales of $28,000,000 and projects sales of $39,200,000 for next year. The firm's current assets equal $9,000,000 while its fixed assets are $8,000,000. The best estimate is that current assets will rise directly with sales while fixed assets will rise by $500,000. The firm presently has $3,600,000 in accounts payable, $1,800,000 in long-term debt, and $11,600,000 in common equity. All current liabilities are expected to change directly with sales. CCC plans to pay $1,000,000 in dividends next year and has a 5.0% net profit margin. Assuming the increase in fixed assets will occur, what is the most sales could equal next year without using discretionary sources of funds? (Round your answer to the nearest dollar.)   $30,330,300   $27,300,000   $33,619,950   $24,103,170   $25,721,514

The current income for a subunit is P36,000. Its current invested capital is P200,000. The subunit is considering purchasing for P20,000 equipment that will increase annual income by an estimated P2,800. The firm's cost of capital is 12%. If the equipment is purchased, the residual income of the subunit will a. increase by 4% b. increase by P400 c. increase by P16,000 d. increase by P2,800

A project currently generates sales of $14 million, variable costs equal 50% of sales, and fixed costs are $28 million. The firm's tax rate is 40%. Assume all sales and expenses are cash items. a. What are the effects on cash flow, if sales increase from $14 million to $15.4 million? (Input the amount as positive value. Enter your answer In dollars not In mllons.) Cash flow increases by s 420,000 b. What are the effects on cash flow, if variable costs increase to 60% of sales? (Input the amount as positive value. Enter your answer In dollars not In mlllons.)

2. Calculating Project NPV The Fleming Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 22 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Investment Sales revenue Operating costs Depreciation Net working capital spending Year 0 $32,800 450 Year 1 Year 2 Year 3 Year 4 $14,200 2,100 8,200 175 $15,900 $15,700 2,100 2,100 8,200 8,200 250 275 $12,900 2,100 8,200 ? a. Compute the incremental net income of the investment for each year. b. Compute the incremental cash flows of the investment for each year. c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the project?

am. 152.

Robust Ventures is planning to expand its production operation. It has identified three different technologies for meeting the goal. The initial investment and annual revenues with respect to each of the technologies are summarized in table below. Initial Investment Annual Revenue Life (years) (Php) (Php) Technology X 1,200,000 400,000 10 Technology Y 2,000,000 600,000 10 Technology Z 1,800,000 500,000 10 Assuming 20% interest rate, compounded annually, find the future worth of Technology Y.