1- Assume that you are appointed as a finance manager of a FMCG company. How you will design the capital structure of the company if company needs to raise capital from $100,000 to $10,00,000 with the mix of Equity and Debt. Determine the EPS in each case and evaluate the best possible actions for the company 2- During the production process if company needs to raise $ 300,000 more capital then which option suits to company? Through Debt or Equity?
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- An investor is considering starting a new business. The company would require $475,000 of assets, and itwould be financed entirely with common stock. The investor will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have an ROE of 13.5%. How much net income must be expected to warrant starting the business? Please show work in excelQuestion 1 You are a newly employed finance manager for Finance Adventure Ltd. The following data is available for the company as of 31 June 2020: Current assets of $293,950 Current liabilities $68,700 Total assets $765,600 Equity $305,890 Required: a) The company’s Management Board required you to evaluate two alternative options of debt funding and equity funding for a new project. What is the job are you doing to complete the task? (referring to one out of 3 important questions of corporate finance for your answer) b) Calculate non-current assets, non-current liabilities and build a balance sheet for the company? c) Calculate the return on assets (ROA) of the company given that return on equity (ROE) is 35%? d) What is the price earnings ratio (PE) of the company, given total number of outstanding ordinary shares is 57,000 and market price of each share is $22?You are given the following information concerning a firm: (please show work) Assets required for operation: $5,000,000 Revenues: $8,400,000 Operating expenses: $7,900,000 Income tax rate: 40%. Management faces three possible combinations of financing: 100% equity financing 30% debt financing with a 6% interest rate 60% debt financing with a 6% interest rate a) What is the net income for each combination of debt and equity financing? b) What is the return on equity for each combination of debt and equity financing? c) If the interest rate had been 12 percent instead of 6 percent, what would be the return on equity for each combination of debt and equity financing?
- Use the following scenario to solve A-C. H2X Incorporated has accounts payable of $400,000 (a typical amount for the company, non-interest bearing), a bank loan of $700,000 at 9% interest rate, a bank loan of $1,000,000 at 6.5% interest rate, and equity of $2,800,000. Its income tax rate is 32%. Management estimates the company’s cost of equity is 14%. A. What is the company’s weighted average cost of capital on non-interest-bearing debt, interest bearing debt, and equity (or total invest capital)? a. 11% b. 10% c. 9% d. 12% B. Company managers are considering selling more stock to raise $500,000 of new equity to purchase $500,000 of new manufacturing equipment. What would the new weighted average cost of capital be if this plan were implemented? a. 10% b. 12% c. 9% d. 11% C. Company managers are projecting that the new manufacturing equipment from question 15 will produce a return on assets of 11%. Should the company proceed with this plan? a. No, because…Suppose Jack, president of Heart Limited has hired you to advise on the firm’s cost of capital. (a) Based on the most recent financial statements, Heart’s total liabilities are $8 million. Total interest expense for the coming year will be about $1 million. Jack therefore reasons, “We owe $8 million, and we will pay $1 million interest. Therefore, our cost of debt is obviously $1 million/8 million = 12.5%.” Appraise Jack’s statement. (b) The company paid $1 million of dividends in the past year. Its market capitalization was $10 million. Based on his own analysis, Jack suggests that the company increases its use of equity financing, because “debt costs 12.5 percent, but equity only costs 10 percent; thus, equity is cheaper.” Appraise Jack’s statement. "Heart Limited has one bond in issue expiring in eight years, paying 0 coupon and has a face value of $1000. It is currently traded at $720, Beta =1.2, risk free rate is 2%, historic market risk premium is 5.5%. Assume the ratio of debt…An accountant for Stability Inc. must calculate the weighted average cost of capital of the corporation using the following information. Interest Rate Accounts payable $35,000,000 0 Long-term debt 10,000,000 8% Common stock 10,000,000 15% Retained earnings 5,000,000 18% What is the weighted average cost of capital of Stability? Select one: a. 10.25% b. 6.88% c. 12.80% d. 8.00%
- Advice the Directors of Access Business Enterprise Limited how the capital market can help the firm raise the $ 500m in new financing?Several investors are in the process of organizing a new company. The investors believe that P2,600,000 will be needed to finance the new company’s operation, and they are considering three methods of raising this amount of money. Method A: All P2,600,000 would be obtained through issue of common stock Method B: P 1,300,000 would be obtained through issue of common stock and the other P1,300,000 would be obtained through issue of P100 par value, 12% preferred stock. Method C: P 1,300,000 would be obtained through issue of common stock, and the other P 1,300,000 would be obtained through issue of bonds carrying an interest ate of 12%. The investors organizing the new company are confident that it can earn P520,000 each year before interest and taxes. The tax rate will be 30%. Required: 1. Assuming that the investors are correct in their earnings estimate, compute the net income that would go to the common stockholders under each of the three financing methods listed above. 2. Using the…You are given the following information concerning a firm:Assets required for operation: $5,600,000Revenues: $8,700,000Operating expenses: $7,900,000Income tax rate: 40%. Management faces three possible combinations of financing: 100% equity financing 35% debt financing with a 8% interest rate 70% debt financing with a 8% interest rate What is the net income for each combination of debt and equity financing? Round your answers to the nearest dollar. 1 2 3 Net income $ $ $ What is the return on equity for each combination of debt and equity financing? Round your answers to one decimal place. 1 2 3 Return on equity % % % If the interest rate had been 16 percent instead of 8 percent, what would be the return on equity for each combination of debt and equity financing? Round your answers to one decimal place. 1 2 3 Return on equity % % % What is the implication of the use of financial leverage…
- Kellogg’s CFO is in the process of determining the firm’s WACC and needs to figure out the weights of the various types of capital sources. Accordingly, she starts by collecting information from the balance sheet and the capital markets, and makes up the table shown below: Component Balance Sheet Value Number Outstanding Current Market Price Market Value Debt $150,000,000 150,000 $1,075 Preferred Stock $ 45,000,000 1,500,000 $40 Common Stock $180,000,000 4,500,000 $45.57 Corporate tax rate = 30% is Tc Before tax cost of debt = 7.6% Rd Cost of Equity = 11.36% Re Based upon the above information, calculate the firm’s weighted average cost of capital.You are the new CFO of Risk SurfingLtd, whichhas current assets of $7,920, net fixed assets of $17,700, current liabilities of $4,580 and long-termdebts of $5,890. Required:a.What are the three important questions of corporate financeyou will need to address? Please briefly explain them and indicate how they are related to the areas in the balance sheet of a company.b.Calculate owners’ equity and build a balance sheet for the company? c.How much is net working capital of the company? d.Calculatethe return on assets of the company giventhat Return on Equity is 30%?e.What is the PE of the company total number of ordinary share outstanding of the companies is 2,000 and market price of each share is $12?You are a newly employed finance manager for Finance Adventure Ltd. The following data is available for the company as of 31 June 2020: Current assets of $293,950 Current liabilities $68,700 Total assets $765,600 Equity $305,890 Required: The company’s Management Board required you to evaluate two alternative options of debt funding and equity funding for a new project. What is the job are you doing to complete the task? (referring to one out of 3 important questions of corporate finance for your answer) Calculate non-current assets, non-current liabilities and build a balance sheet for the company? Calculate the return on assets (ROA) of the company given that return on equity (ROE) is 35%? What is the price earnings ratio (PE) of the company, given total number of outstanding ordinary shares is 57,000 and market price of each share is $22?