Valuation and Capital Budgeting for the Levered Firm
Adjusted Present Value
17.1 Honda and GM are competing to sell a fleet of 25 cars to Hertz. Hertz fully depreciates all of its rental cars over five years using the straight-line method. The firm expects the fleet of 25 cars to generate $100,000 per year in earnings before taxes and depreciation for five years. Hertz is an all-equity firm in the 34-percent tax bracket. The required return on the firm’s unlevered equity is 10 percent, and the new fleet will not add to the risk of the firm.
a. What is the maximum price that Hertz should be willing to pay for the new fleet of cars if it remains an all-equity firm?
b. Suppose Hertz purchases the fleet from GM for $325,000, and Hertz
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These cash flows are expected to remain the same forever. The corporate tax rate is 40%.
a. Use the Flow-to-Equity approach to determine the value of Milano Pizza Club’s equity.
b. What is the total value of Milano Pizza Club?
Weighted Average Cost of Capital
17.6 If Wild Widgets, Inc., (WWI) were an all-equity firm, it would have a beta of 0.9. WWI has a target debt-to-equity ratio of 0.50. The expected return on the market portfolio is 16%, and Treasury bills currently yield 8% per annum. WWI one-year, $1,000 par value bonds carry a 7% annual coupon and are currently selling for $972.73. The yield on WWI’s longer term debt is equal to the yield on its one-year bonds. The corporate tax rate is 34%.
a. What is WWI’s cost of debt?
b. What is WWI’s cost of equity?
c. What is WWI’s weighted average cost of capital?
17.7 Bolero, Inc., has compiled the following information on its financing costs:
Bolero is in the 34% tax bracket and has a target debt-to-equity ratio of 100%. Bolero’s managers would like to keep the market values of short-term and long-term debt equal.
a. Calculate the weighted average cost of capital (rwacc) for Bolero using:
i. Book-value weights ii. Market-value weights iii. Target weights b. Explain the difference between the WACCs. Which is the correct WACC to use for project evaluation?
True or False: A permanent magnet is a piece of material that has been magnetized and can hold its magnetic strength for a reasonable length of time. True.
b.What are the amounts and timing of the acquisition investment’s free cash flow from 2013 through 2022?
Question 1: Using budget data, how many motors would have to be sold for Waltham Motors Division to breakeven?
1.) According to Lao-tzu, what must the ruler provide the people with if they are to be happy?
|1. |An insurance representative wants to determine if the proportions of women and men who buy the different policy types are the |
Why would you use http or ftp instead of bit torrent for downloading large files? == you would use ftp because it does not have client authorization needed, and you would use http because it connects directly to a server to download when with bit torrent uses more TCP connections which can be blocked by firewalls..
1. Long-distance commerce acted as a motor of change in pre-modern world history by altering consumption and daily life. Essential food and useful tools such as salt were traded from the Sahara desert all the way to West Africa and salt was used as a food preserver. Some incenses essential to religious ceremonies were traded across the world because there was a huge demand for them. Trade diminished economic self-sufficiency by creating a reliance on traded goods and encouraged people to specialize and trade a particular skill. Trade motivated the creation of a state due to the wealth accumulated from controlling and taxing trade. Trade posed the problem of if the government or private
Study Questions: Answer the following questions (based on the reading), save it and then submit it to the professor.
uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company 's manufacturing overhead data:
Using a browser such as Google, type ?Images for bill of lading example? and select a completed bill of lading of interest. First, identify the type of bill of lading chosen (i.e. ocean, uniform, to-order, negotiable, non-negotiable, intermodal, airway bill, etc.). Then discuss at least three particular areas on the bill that you find intriguing. For example, you may find special handling instructions for lifting and handling the cargo. Do not simply echo back information off the form.
2. What were the yields on the two representative outstanding Heinz-debt issues as of the end of April 2010? What were they one year earlier?
a. Assuming the most current operational cost levels, what sales must it generate to recoup the above investment?
The course project involved developing a great depth of knowledge in analyzing capital structure, theories behind it, and its risks and issues. Before I began this assignment, I knew nothing but a few things about capital structure from previous unit weeks; however, it was not until this course’s final project that came along with opening
1. Scheduling involves the timing of operations to achieve the efficient movement of units through a system. The overall objective of scheduling is faster movement of goods and services through a facility, better customer service and dependable delivery.
a. A Knowledge management system attempt to help organizations achieve their goals. They usually help in means of increasing profits or reducing costs.