Proposed $8.000 Current $8.000 $0 $8.000 Assets Debt $4.000 Equity Debt/Equity Ratio Shares outstanding Share price 0.00 400 200 $20 $20 EPS and ROE Under Current Structure (unlevered firm) Expected $1200 Recession $400 Expansion $2000 EBIT Interest $400 $1 $1200 $3.00 $2000 $5.00 Net income EPS ROA 5% 15% 25% ROE 5% 15% 25% EPS and ROE Under Proposed Structure (levered firm) Expected $1.200 -$400 $800 $4.00 Recession Expansion $2.000 -$400 $400 -$400 $0 $0 EBIT Interest $1600 $8.00 Net income EPS ROA 5% 15% 25% ROE 20% 40%

Proposed $8.000 Current $8.000 $0 $8.000 Assets Debt $4.000 Equity Debt/Equity Ratio Shares outstanding Share price 0.00 400 200 $20 $20 EPS and ROE Under Current Structure (unlevered firm) Expected $1200 Recession $400 Expansion $2000 EBIT Interest $400 $1 $1200 $3.00 $2000 $5.00 Net income EPS ROA 5% 15% 25% ROE 5% 15% 25% EPS and ROE Under Proposed Structure (levered firm) Expected $1.200 -$400 $800 $4.00 Recession Expansion $2.000 -$400 $400 -$400 $0 $0 EBIT Interest $1600 $8.00 Net income EPS ROA 5% 15% 25% ROE 20% 40%

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter12: Fainancial Statement Analysis

Section: Chapter Questions

Problem 99.2C

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Similar questions

Q 04: Required: Calculate the value of Firm and WACC for the following capital structures EBIT of Firm. 250,000 Ke = 11% Kd = 7% Debt capital Rs. 500,000 Debt = Rs. 700,000 Debt =Rs. 200,000 Particulars Case 1 Case 2 Case 3 EBIT 250,000 250,000 250,000 (-) Interest 30,000 42,000 12,000 EBT 220,000 208,000 238,000 Ke 10% 10% 10% Value of Equity 22,00,000 208,0000 2380,000 (EBT / Ke) Value of Debt 500,000 700,000 200,000 Total Value of Firm 2,700,000 2,780,000 2,580,000 WACC (EBIT / Value) * 100
YZ Goods target capital structure and other data follow: Long-term debt $ 754,000,000 Preferred stock 40,000,000 Common equity 896,000,000 Total capital $1,690,000,000 Cost of Debt (kd) = 11% for amounts up to 80 M of additional Debt; will rise to 13% after that. Cost of Preferred = 10.5% at any amount T = 40%. P0 = $23. g= 8%, and it is expected to remain constant. Assume that the company expects to have total earnings of $137.8 million in 2020. Further, it has a target payout ratio of 45 percent, so it plans to pay out 45 percent of its earnings as dividends. Flotation cost of 5% is incurred for issuance of new shares. The following projects are available for investment: Project Cost (in Millions) Rate of Return A $50…
Year 0 1 Revenue 600.00 Fixed costs 100.00 Variable costs 200.00 Additional investment in NWC 10.00 Additional investment in operating long-term assets 70.00 Depreciation 60.00 Interest expenses 35.00 Newly issued debt 25.00 Principle repayments 15.00 Tax rate 0.40 Market value of the firm: Price per share No. of shares Market value Short-term debt 100.00 Long-term debt 600.00 Preferred stock 10.00 10 100.00 Common stock, equity 18.00 100 1,800.00 Total 2,600.00 Cost of equity (Rs) 0.1500 Growth rate per year from year 1 through year 5 0.10 Growth rate after year 5 0.07 What is the price per share according to the equity free cash flow model? Select one: a. $18.29 b. $10.98 c. $15.51 d. $20.87 e. $12.33
Can you explain the information below market value added (MVA) analysis and interpretation of results below. Market Value of Equity:$133,341,000,000.00 Plus: Market Value of Debt:$13,677,000.00 Equals: Market Value of Firm:$133,354,677,000.00 Minus: Total Invested Capital:($1,944,100.00) Equals: MVA$133,356,621,100.00
ABC Company provided the following information on December 31, 2020Share capital 5,000,000Subscribed share capital 3,000,000Subscription receivable 2,000,000Share premium 1,500,000Treasury Shares, at cost 700,000Retained Earnings 1,000,000Cumulative unrealized gain on Financial Asset at FVOCI 600,000What is the contributed capital on December 31, 2020?
Current Asset 120 000Cash 20 000Accounts Receivable 45 000Short-term investments 12 000Merchandise Inventory 42 000Current Liabilities 68 000 What is the company's current ratio?What is the company's quick ratio?
Why do you deduct or subtract 1 to flotation cost? Example: Given; Annual dividend (D) = $4.75 Flotation cost (F) = 0.05 or 5% Number of shares issued (N) = 10,000 Stock price (P0) = $50 Formula; Total value able to receive = N * P0 * (1 - F) Total value able to receive = 10,000 * $50 * (1 - 0.05) Total value able to receive = $500,000 * 0.95 Total value able to receive = $475,000
Assume the following data for U&P Company: Debt (D) = $100 million; Equity (E) = $300 million; rD = 6%; rE = 12%; and TC = 30%. Calculate the after-tax weighted average cost of capital (WACC): Multiple Choice A) 10.5% B) 10.05% C) 15% D) 9.45%
Current Proposed Assets $10,000 $18,000 Debt $- $8,000 Equity $10,000 $10,000 Debt/Equity 0 0.8 Interest Rate n/a 7% Shares Outstanding 500 500 Share Price $20 $20 A. Recession Expected Expansion EBIT $500 $1,000 $1,500 Interest 0 0 0 Net Income $500 $1,000 $1,500 Assets 10000 10000 10000 Equity 10000 10000 10000 Shares Outstanding 500 500 500 EPS $1 $2 $3 ROA $0.05 $0.10 $0.15 ROE $0.05 $0.10 $0.15 (b) If the company adds the proposed amount of debt and EBIT is expected to expand proportionally, fill out the table in (a) after the debt is issued.
Return on Capital Employed (ROCE) = For Riccarton PLC: ROCE = 50000/380000 X 100 = 13.2% For Edinburgh PLC: ROCE = 45000/230000 X 100 = 19.6% Current Ratio = Current assets/current liabilities For Riccarton PLC: Current ratio = 150/120 = 1.25 For Edinburgh PLC: Current ratio = 80/70 = 1.14 Gearing Ratio = (long term borrowing + short term borrowings) / equity For Riccarton PLC: Gearing ratio = (180 + 100)/200 = 1.4 For Edinburgh PLC: Gearing ratio = (100 + 50)/130 = 1.15 Price/Earnings (P/E) Ratio = Share price / earnings per share For Riccarton PLC: P/E Ratio = 195/35 =5.57 For Edinburgh PLC: P/E Ratio = 451/28 = 16.107 Based on the above ratios explain, which company George H. and James W. should invest in. You should also briefly discuss the limitations of your analysis.
The company capital structure consist of debt 340000 @ 4.05%, common stock 40% of preferred stock @ 9.09% and preferred stock 400000 @ 19.50%, calculate company’s weighted average cost of capital. Select one: a. 12.50% b. 11.79% c. 14.98% d. None of the option e. 13.15%
Is this a right valuation? Valuation Calculations EV/EBITDA Multiple Capitalization $ 188.3 billion - Cash and Investment $ 5.018 billion + Market Debt Value $ 16.27 billion = Market Value of Equity $ 199.552 billion / Outstanding Shares 0.44 billion = EV/EBITDA $ 453.53