Essay on Fin 534 Week 10 Homework Set 5 – New

690 Words Oct 20th, 2015 3 Pages
FIN 534 Week 10 Homework Set 5 – NEW

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FIN 534 Week 10 Homework Set 5 – NEW
Boehm Corporation has had stable earnings growth of 8% a year for the past 10 years and in 2013 Boehm paid dividends of $2.6 million on net income of $9.8 million. However, in 2014 earnings are expected to jump to $12.6 million, and Boehm plans to invest $7.3 million in a plant expansion. This one-time unusual earnings growth won’t be maintained, though, and after 2014 Boehm will return to its previous 8% earnings growth rate. Its target debt ratio is 35%. Calculate Boehm’s total dividends for 2014 under each of the following
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What is the incremental profit? To get a rough idea of the project’s profitability, what is the project’s expected rate of return for the next year (defined as the incremental profit divided by the investment)? Should the firm make the investment? Why or why not? Would the firm’s break-even point increase or decrease if it made the change? Use the following information for Questions 7 and 8: Suppose you are provided the following balance sheet information for two firms, Firm A and Firm B (in thousands of dollars). Firm A Firm B Current assets $150,000 $120,000 Fixed assets (net) 150,000 180,000 Total assets $300,000 $300,000

Current liabilities $20,000 $80,000 Long-term debt 80,000 20,000 Common stock 100,000 100,000 Retained earnings 100,000 100,000 Total liabilities and equity $300,000 $300,000

Earnings before interest and taxes for both firms are $30 million, and the effective federal plus-state tax rate is 35%. What is the return on equity for each firm if the interest rate on current liabilities is12% and the rate on long-term debt is 15%? Assume that the short-term rate rises to 20%, that the rate on new long-term debt rises to 16%, and that the rate on existing long-term debt remains unchanged. What would be the return on equity for Firm A and Firm B under these conditions? In 1983 the Japanese yen-U.S. dollar exchange rate was 250