Fundamentals of Corporate Finance Standard Edition with Connect Plus
10th Edition
ISBN: 9780077630706
Author: Stephen Ross
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 4, Problem 30QP
EFN [LO2] Define the following:
Assuming all debt is constant, show that EFN can be written as follows:
Hint: Asset needs will equal A × g. The addition to
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Give typing answer with explanation and conclusion
27. EFN Define the following:
S = Previous year’s sales
A = Total assets
E = Total equity
g = Projected growth in sales
PM = Profit margin
b = Retention (plowback) ratio
Assuming that all debt is constant, show that EFN can be written as
EFN = −PM(S)b + [A − PM(S)b] × g
Hint: Asset needs will equal A × g. The addition to retained earnings will equal PM(S)b × (1 + g).
Calculating Profi tability Ratios [LO2] Wakers, Inc., has sales of $29 million,total assets of $17.5 million, and total debt of $6.3 million. If the profi t marginis 8 percent, what is net income? What is ROA? What is ROE?
FINA's business risk (Ru) is 9% in the industry. The debt-to-equity ratio is 0.4. The cost of debt is 3%. The tax rate is 20%. What is the required return of equity (Re)?
Chapter 4 Solutions
Fundamentals of Corporate Finance Standard Edition with Connect Plus
Ch. 4.1 - What are the two dimensions of the financial...Ch. 4.1 - Prob. 4.1BCQCh. 4.2 - Prob. 4.2ACQCh. 4.2 - Prob. 4.2BCQCh. 4.3 - Prob. 4.3ACQCh. 4.3 - Prob. 4.3BCQCh. 4.4 - How is a firms sustainable growth related to its...Ch. 4.4 - What are the determinants of growth?Ch. 4.5 - What are some important elements that are often...Ch. 4.5 - Why do we say planning is an iterative process?
Ch. 4 - Prob. 4.1CTFCh. 4 - Prob. 4.2CTFCh. 4 - A firm has current sales of 272,600 with total...Ch. 4 - Prob. 4.4CTFCh. 4 - What is generally considered when compiling a...Ch. 4 - Sales Forecast [LO1] Why do you think most...Ch. 4 - Sustainable Growth [LO3] In the chapter, we used...Ch. 4 - External Financing Needed [LO2] Testaburger, Inc.,...Ch. 4 - EFN and Growth Rates [LO2, 3] Broslofski Co....Ch. 4 - Prob. 5CRCTCh. 4 - Prob. 6CRCTCh. 4 - Prob. 7CRCTCh. 4 - Prob. 8CRCTCh. 4 - Cash Flow [LO4] Which was the biggest culprit...Ch. 4 - Prob. 10CRCTCh. 4 - Prob. 1QPCh. 4 - Prob. 2QPCh. 4 - Prob. 3QPCh. 4 - Prob. 4QPCh. 4 - Prob. 5QPCh. 4 - Prob. 6QPCh. 4 - Prob. 7QPCh. 4 - Prob. 8QPCh. 4 - Prob. 9QPCh. 4 - Prob. 10QPCh. 4 - Prob. 11QPCh. 4 - Prob. 12QPCh. 4 - Prob. 13QPCh. 4 - Prob. 14QPCh. 4 - Prob. 15QPCh. 4 - Prob. 16QPCh. 4 - Prob. 17QPCh. 4 - Prob. 18QPCh. 4 - Prob. 19QPCh. 4 - Prob. 20QPCh. 4 - Prob. 21QPCh. 4 - Prob. 22QPCh. 4 - Prob. 23QPCh. 4 - Prob. 24QPCh. 4 - Prob. 25QPCh. 4 - Prob. 26QPCh. 4 - Prob. 27QPCh. 4 - Prob. 28QPCh. 4 - Constraints on Growth [LO3] Volbeat, Inc., wishes...Ch. 4 - EFN [LO2] Define the following:...Ch. 4 - Growth Rates [LO3] Based on the result in Problem...Ch. 4 - Prob. 1MCh. 4 - Prob. 2MCh. 4 - Prob. 3M
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Looking at Morningstars Profitability ratios, what has happened to Hewlett Packards profit margin (net margin %) over the past 10 years? What has happened to its return on assets (ROA) and return on equity (ROE) over the past 10 years?arrow_forwardUse the information below to calculate WACC given the Market Capitalization of the company: Market Cap = 193.2 Million EBIT = 17.2 Million Depreciation = 4.2 Million Capital Expenditures = - 3.8 Million Change in W/C = 2.1 Million growth = 7% FCF = ? WACC = ?arrow_forwardH3. A firm wishes to maintain an sustainable growth rate of 9 percent and a dividend payout ratio of 64 percent. The ratio of total assets to sales is constant at 0.9, and the profit margin is 10.1 percent. If the firm also wishes to maintain a constant debt-equity ratio, what must it be? Please show proper step by step calculationarrow_forward
- The relationship between Firm Z's growth potential and its external financing needed is: EFN = –2,275 + 147,725g What is the growth rate when EFN is zero? Multiple Choice 20% 5.25% 0% 1.54% 64.93%arrow_forwardI. The higher the financial leverage, the higher financial risk and the higher the cost of capital.II. Higher debt ratio, the higher the DFL and Required rate of return. The greater the degree of Financial Leverage, the greater the fluctuations in EPS. A• TF B• FF C• FT D• TTarrow_forwardH5. Use the following information to find the external financing needed (EFN): Current sales: $6,000; Current costs: $3,000; Total Assets: $20,000; Total Debt: $8,000; Total equity: $12,000; Projected sales: $9,600. Total assets and costs are proportional to sales. The firm does not plan to distribute any dividends. The level of debt and equity is independent of the level of sales. Options: A) $3,200 B) $1,450 C) $8,800 D) $7,200 E) $12,000arrow_forward
- H3. Compute the standard deviation of the expected return given these three economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast Growth 0.2 30% Slow Growth 0.5 6% Recession 0.3 −2% Please show proper step by step calculationarrow_forwardQ. Suppose a company uses only debt and internal equity to finance its capital budget and uses CAPM to compute its cost of equity. Company estimates that its WACC is 12%. The capital structure is 75% debt and 25% internal equity. Before tax cost of debt is 12.5 % and tax rate is 20%. Risk free rate is rRF = 6% and market risk premium (rm - rRF ) = 8%: What is the beta of the company?arrow_forwardA firm had a debt ratio of 1.20. The pretax cost of debt is 8% and the reqiured return on asset is 13%. What is the cost of equity if you Ignore taxes? A) 18.24% B) 20.14% C)17.67% D) 19.57% E) 19%arrow_forward
- Archimedes Levers is financed by a mixture of debt and equity. You have the followinginformation about its cost of capital:rE =__, rD = 12%, rA = __,Beta(E) = 1.5, Beta(D) =__, Beta(A) = __,rf = 10%, rm = 18%, D/V = .5Can you fill in the blanks? Suppose now that Archimedes repurchases debt and issuesequity so that D / V = .3. The reduced borrowing causes r D to fall to 11%. How do theother variables change?arrow_forwardAssume the following ratios are constant. Total asset turnover 1.49 Profit margin 8.7% Equity multiplier 1.6 Payout ratio 55% What is the sustainable growth rate?arrow_forwardF2 You are analyzing a valuation done on a stable firm by a well-known analyst. Based on the expected free cash flow to firm next year of $30 million and an expected growth rate of 5%, the analyst has estimated a value of $750 million. You know that the firm has a cost of equity of 14% and an after-tax cost of debt of 6%. What is the weight of equity that the analyst has used? 37.5 % 42.5 % 50 % 57.5 % ANSWER IS 37.5%arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Fundamentals of Financial Management, Concise Edi...FinanceISBN:9781305635937Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Fundamentals of Financial Management, Concise Edi...
Finance
ISBN:9781305635937
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
FIN 300 Lab 1 (Ryerson)- The most Important decision a Financial Manager makes (Managerial Finance); Author: AllThingsMathematics;https://www.youtube.com/watch?v=MGPGMWofQp8;License: Standard YouTube License, CC-BY
Working Capital Management Policy; Author: DevTech Finance;https://www.youtube.com/watch?v=yj-XbIabmFE;License: Standard Youtube Licence