Neptune Company offers network communications systems to computer users. The company is planning a major investment expansion but is unsure of the correct measure of equity capital as it has no traded equity. Your job is to determine the basis of the equity cost. List and explain the steps you will need to take. The
Q: This is a two state economy with two securities. Calculate the risk-free rate Security S Security T…
A: Expected rate of return is the profit or loss on the investor that is assumed to be anticipated by…
Q: The company requires P1,000,000 for its proposed plan. The following financial alternatives are…
A: Given, Plan 1 has 100% equity capital Plan III has 50% equity capital and 50% preference capital
Q: The payback method measures: The profitability of an investment. The net cash inflow from an…
A: Pay back period is most popular method of capital budgeting decisions and is quite simple to use and…
Q: Carby Hardware has an outstanding issue of perpetual preferred stock with an annual dividend of…
A: Preferred stock selling price is calculated using following equation Price of preferred stock = D/r…
Q: inance what is a pillar of finance?
A: Finance as a subject and as a topic is a vast field and subject and includes different sub topics…
Q: What is the present value of $30,000 you will receive 7 years in the future, ass
A: The present value is equivalent value of money to be received today that will be equal to money to…
Q: a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.2…
A: Semiannual coupon amount = $51 Cash flow (Semiannual period 1 - 19) = $51 Cash flow (Semiannual…
Q: The company recently invested in a project that has an expected annual cash inflow of P700,000 for…
A: The payback period represents the period that a project takes to recoup the initial investment. The…
Q: Matteo Company was expected to pay a $4.00 dividend in the coming year, dividends were expected to…
A: The price of stock can be calculated as the present value of dividends based on required of stock…
Q: Compute the pay back, discounted pay back, NPV and IRR of the following projects; Assume a discount…
A: Discount rate 10% Year Project A Project B Project C 0 -2000 -2000 -2000 1 500 500 1800…
Q: when is a good time to invest in straight bon
A: Bond are type of debt instruments that are used to raise the money from market and only interest is…
Q: Rogoff Co.'s 15-year bonds have an annual coupon rate of 9.5%. Each bond has face value of $1,000…
A: Bonds are debt instruments issued by a company. The company that issues the bond pays a periodic…
Q: Partition: %CF rental income and % CF from Sales
A: Please note the assumptions we are making while calculating the % CF from sales and rental income.1.…
Q: How long will it take BD 1200 to accumulate to BD 2000 if the interest is at 6% compounded semi-…
A: Note: Hi! Thank you for the question, As per the Honor code, we are allowed to answer one question…
Q: .Ran Company wants to determine its cost of common stock equity using the CAPM. The company's…
A: The CAPM refers to the Capital Asset Pricing Model. The model describes the relationship between…
Q: Joan Zorba orders calculators for her office supply stores. Each calculator cost $35, currently she…
A: Given values in the question: Cost of calculator (C) = $35 Daily demand (d) = 5 Ordering cost (Co)…
Q: Assume that the average firm in C&J Corporation’s industry is expected to grow at a constant rate of…
A: The Dividend Discount Model: The dividend discount model recognizes that the dividends declared by a…
Q: When deciding whether or not to take a trade discount, the cost of borrowing funds should be…
A: Trade Discount - It is the discount which is given on bulk purchase, the same is reduced from the…
Q: a. Calculate the value of the bond. b. How does the value change if the market's required yield…
A: Information Provided: Coupon payment = $120 Par value = $1000 Maturity = 15 Yield to maturity = 10%…
Q: St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a…
A: As per the given information: Earnings before depreciation before replacement - $30,000 Earnings…
Q: Suppose health-care reform Y makes it unlawful for insurance companies to deny insurance to persons…
A: In finance when health care related policies are implemented then a cost benefit analysis is done by…
Q: At what per annum rate must $232 be compounded monthly for it to grow to $617 in 10 years?
A: EXCEL FORMULA:
Q: What are mortgage discount points? When does it make sense to pay points on a loan? How can a…
A: Mortgage discount point are all such points which will be reducing the total amount of fees which an…
Q: 2. When you deposit $50 in currency at Old National Bank A) its assets increase by less than $50…
A: When you deposit money in the banks than some part of it goes to deposit and some part of it goes to…
Q: QUESTION 1 Kinetik Bhd issued bonds with 11 years remaining to maturity. Interest is paid…
A: Yield to maturity (YTM) It is the rate of return on a bond if the bond is held till its maturity. If…
Q: g Nike's stock price is $68 per share, shares outstanding are $1,600 million, and the company…
A: Company need money and they can raise from the market by issue of new shares but how many shares to…
Q: On July 30, 2021, the following information was available to an investor: Yield on 10 Year TIPS:…
A: TIPS are treasury inflation-protected securities. These securities are indexed to inflation and…
Q: Zefer Ltd. has faced extreme financial difficulties over the course of the past decade, however, the…
A: Total Market Value = No.of Shares Already Issued * Market Value of Share = 1,000,000,000 * 90…
Q: 2) Capital raising involves a firm’s decision in ____________________. Group of answer choices…
A: A firm needs long term finance like common stock, preferred stock, long term debt etc to meet its…
Q: Cash discount versus loan The Wood Connection decides to offer cash discounts to its regular credit…
A: The company also makes sales of goods and services on account to increase the sale. The company uses…
Q: Two mutually exclusive alternatives have the estimates shown below. Use annual worth analysis to…
A: Present Value: The present value is the current value of a series of fixed payments. The series of…
Q: In a gaming room of a high-traffic video arcade wishes to determine the return on its video machine.…
A:
Q: An investment of P40,000 has a revenue of X pesos at the end of the first and second year. Given a…
A: When net present worth is zero that means present value of cash flow is equal to initial investment…
Q: A draw bench for precision forming and strengthening of carbon steel tubing has a cost of…
A: Depreciation refers to the amount that decreases the monetary value of an asset over time due to…
Q: Colin is analyzing a 3-year project that has an initial cost of $199,800. This cost will be…
A: Average accounting rate of return is calculated with the formula belowARR = Average Net…
Q: Compare the following two mutually exclusive projects on the basis of Accounting Rate of Return…
A: Accounting rate of return(ARR) is the rate of return calculated by dividing average annual profit by…
Q: What is the financial function? How is it important in the engineering firm?
A: Finance: Finance is study of money and investments. In broader concept, it deals with all the…
Q: An increase in days sales outstanding positively impacts cash flows True False
A: Days sales outstanding-It is the average number of days that a company takes to collect payment for…
Q: Mr. Angelo borrowed $50,000.00 at a compound interest rate of 3% per month, with a promise to repay…
A: Given:- Sum borrowed or say P = $50,000 Compound interest rate of 3% per month. Proposal by the…
Q: Your firm is evaluating a capital budgeting project. The estimated cash flows appear below. The…
A: Net Present Value(NPV) refers to one of the concepts from the modern techniques of capital budgeting…
Q: A piece of production equipment is purchased for an initial cost of $1,200,000. It has a life of 10…
A: Production cost: The production cost is the entire amount spent on the materials, labor, and other…
Q: Discuss the agency costs in the Agency Theory in corporate governance and solutions applied thereto.
A: Agency cost: Conflicts regarding the relative priorities between principals and their agents are…
Q: Boehm Incorporated is expected to pay a $3.00 per share dividend at the end of this year (i.e., D1 =…
A: Here, Expected Dividend is $3.00 per share Growth Rate is 6% Required Rate of Return is 12%
Q: The following 6 companies constitute the index of democratic republic of Kusadikika. Company Today's…
A: Market indices can be price weighted average, market value weighted average or equal value indices.…
Q: How is the wealth of a firm’s shareholders/owners measured by? Group of answer choices a)…
A: The objective of financial management is to maximize the wealth of shareholders, that is maximize…
Q: A generous donor has offered to fund a scholarship at UTP worth RM120,000 per year beginning in year…
A: Perpetuity will be reflective of a stream of cash flows which will be continuing forever. The…
Q: Reward-to-Risk Ratios [LO4] Stock Y has a beta of 1.3 and an expected return of 18.5 percent. Stock…
A: Here, Risk-free rate = 8% Market risk premium = 7.5% Stock Y: Beta = 1.3 Expected return = 18.5%…
Q: find the present value PV of the annuity account necessary to fund the withdrawal given. (Assume…
A: The present value of annuity is the equivalent money today that is equivalent to the future cash…
Q: Under the gold standard, when annual goods production outstrips the annual production of gold the…
A: Under gold standard, a country's money was linked to the amount of gold that the country had.…
Q: When evaluating a project with non-normal cash flows (cash flows change sign for at least two times…
A: The internal rate of return method is a advancement upon internal rate of return method which will…
Step by step
Solved in 2 steps
- David Lyons, CEO of Lyons Solar Technologies, is concerned about his firms level of debt financing. The company uses short-term debt to finance its temporary working capital needs, but it does not use any permanent (long-term) debt. Other solar technology companies have debt, and Mr. Lyons wonders why they use debt and what its effects are on stock prices. To gain some insights into the matter, he poses the following questions to you, his recently hired assistant: d. Suppose that Firms U and L have the same input values as in Part c except for debt of 980,000. Also, both firms have total net operating capital of 2,000,000 and both firms are expected to grow at a constant rate of 7%. (Assume that the EBIT in part c is expected at t = 1.) Use the compressed adjusted present value (APV) model to estimate the value of U and L. Also estimate the levered cost of equity and the weighted average cost of capital.David Lyons, CEO of Lyons Solar Technologies, is concerned about his firms level of debt financing. The company uses short-term debt to finance its temporary working capital needs, but it does not use any permanent (long-term) debt. Other solar technology companies have debt, and Mr. Lyons wonders why they use debt and what its effects are on stock prices. To gain some insights into the matter, he poses the following questions to you, his recently hired assistant: Now assume that Firms L and U are both subject to a 25% corporate tax rate. Using the data given in part b, repeat the analysis called for in parts b(1) and b(2) using assumptions from the MM model with taxes.David Lyons, CEO of Lyons Solar Technologies, is concerned about his firm’s level of debt financing. The company uses short-term debt to finance its temporary working capital needs, but it does not use any permanent (long-term) debt. Other solar technology companies have debt, and Mr. Lyons wonders why they use debt and what its effects are on stock prices. To gain some insights into the matter, he poses the following questions to you, his recently hired assistant: Who were Modigliani and Miller (MM), and what assumptions are embedded in the MM and Miller models?
- Which of the following limits the market from becoming a fully efficient market? New information takes time to process. Obtaining new information is costly. The existence of closed end investment companies. Both a. and b. are correct. All of the above answers are correct. None of the above answers is correct.An analyst at a company notes that its cost of debt is far below that of equity. He concludes that it is important for the firm to maintain the ability to increase its borrowing because if it cannot borrow, it will be forced to use more expensive equity to finance some projects. This might lead it to reject some projects that would have seemed attractive if evaluated at the lower cost of debt. How do you balance the amount of equity and debt? Explain the significance of maintaining the ability to increase borrowing capacity for a company with a lower cost of debt compared to equity. How does this impact project evaluation and investment decisions, and what role does the concept of cost of capital play in such considerations?Manny Delgado is interviewing with the Bank of MF for a financial analyst position. The interviewer is interested in knowing whether he understands the EV-to-EBITDA multiple. Delgado explains that the enterprise value is determined by the market value of equity and total debt. He also points out an alternative measure of the enterprise value which considers the free cash flow to the firm. Delgado suggests that we need to subtract the investments on working capital and PPE when calculating the free cash flow to the firm. He further explains the reason we do so is due to the interest tax shield that the investments on working capital and PPE would create. Therefore, by excluding the investments on working capital and PPE, the EV[1]to-EBITDA ratio is not affected by the interest tax shield and is a consistently-defined ratio. Q: Is Delgado’s suggestion on the reason that the investment on working capital and PPE are excluded justifiable? Why?
- The DISADVANTAGES of equity finance are KELEMAHAN kewangan ekuiti i. Entrepreneur does not have total control of the company. /Usahawan tidak mempunyai kawalan menyeluruh syarikat ii. Equity Investors do not always agree to the plans of the business/ Pelabur Ekuiti tidak selalu bersetuju dengan rancangan perniagaan iii. Arranging equity financing is much more complex /Mengatur pembiayaan ekuiti adalah lebih kompleks iv. Entrepreneur does not have to repay the money invested/injected into the company/ Usahawan tidak perlu membayar balik wang yang dilaburkan/disuntik ke dalam syarikat Select one: A. iii and iv /iii dan iv B. i,ii and iii./ i,ii dan iii C. ii, iii and iv /ii, iii dan iv D. All above/ Semua di atasIf you know that your firm is facing relatively poor prospects but needs new capital, and you know that investors do not have this information, signaling theory would predict that you would Group of answer choices Convey your inside information to investors using the media to eliminate the information asymmetry. Issue debt to maintain the returns of equity holders. Postpone going into capital markets until your firm's prospects improve. Be indifferent between issuing debt and equity. Issue equity to share the burden of decreased equity returns between old and new shareholders.Give your thoughts on the prompts below Firms use market capitalization when considering the market value added. We have seen that a number of things can affect capitalization values, so is this really the best method to use? A well known company recently had a 20-1 stock split that drew a lot of attention...how does this affect their market value added? Administrative errors can have a big impact in receivables turnover and payment delay ratios, so companies should include administrative and other indirect costs in the calculations of those ratios. Agree or Disagree and defend your answer.
- Which is true regarding Market efficiency? A well-functioning market should have access to the trading price but no on the volume of shares currently in the market being traded A large corporation that maintains good communication with investors may lean on the Highly inefficiency part of the efficiency continuum Market opportunity should be communicated not only to selected group of individuals but within the public in general to create a well-functioning market Small and medium companies always lie on highly inefficient extreme of the efficiency continuum lineCan you please assist by clearly answering the question. Please dont copy and paste answers that have been already posted. In each of the theories of capital structure the cost of equity risesas the amount of debt increases. So why don’t financial managers useas little debt as possible to keep the cost of equity down? After all,isn’t the goal of the firm to maximize share value and minimizeshareholder costs?Suppose a firm makes the following policy changes. If the change means that external nonspontaneousfinancial requirements (AFN) will increase, indicate this with a (+); indicate adecrease with a (-); and indicate an indeterminate or negligible effect with a (0). Think interms of the immediate short-run effect on funds requirements.a. The dividend payout ratio is increased. _____________b. Rather than produce computers in advance, a computer companydecides to produce them only after an order has been received. _____________c. The firm decides to pay all suppliers on delivery, rather than aftera 30-day delay, to take advantage of discounts for rapid payment. _____________d. The firm begins to sell on credit. (Previously, all sales had been on acash basis.) _____________e. The firm’s profit margin is eroded by increased competition; sales aresteady. _____________f. Advertising expenditures are stepped up. _____________g. A decision is made to substitute long-term mortgage bonds for…