8. Please help me to answer this completely. Thank you. Fill in the blanks:Evarista Inc. has projected average earnings every year of P5,000,000.00. Debt to equity ration is 4:1. After tax cost of debt is 5% while cost of equity is10%. The Board of Directors of the company decided to sell the company for P10,000,000.00Compute the EVA

Weighted average cost of capital = Cost of debt x debt to equity ratio + Cost of equity x debt to…

Answered: Evarista Inc. has projected average…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 4P

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Payne Products had $1.6 million in sales revenues in the most recent year and expects sales growth to be 25% this year. Payne would like to determine the effect of various current assets policies on its financial performance. Payne has $1 million of fixed assets and intends to keep its debt ratio at its historical level of 60%. Payne’s debt interest rate is currently 8%. You are to evaluate three different current asset policies: (1) a restricted policy in which current assets are 45% of projected sales, (2) a moderate policy with 50% of sales tied up in current assets, and (3) a relaxed policy requiring current assets of 60% of sales. Earnings before interest and taxes are expected to be 12% of sales. Payne’s tax rate is 40%. What is the expected return on equity under each current asset level? In this problem, we have assumed that the level of expected sales is independent of current asset policy. Is this a valid assumption? Why or why not? How would the overall risk of the firm vary under each policy?

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Evarista Inc. has projected average earnings every year of P5,000,000.00. Debt to equity ration is 4:1. After tax cost of debt is 5% while cost of equity is 10%. The Board of Directors of the company decided to sell the company for P10,000,000.00 Compute the EVA||