EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 4, Problem 9P
Summary Introduction
To determine: The amount of external financing required by Company B.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Berea Resources is planning a $75 million capital expenditure program for the coming year. Next year, Berea expects to report to the IRS earnings of $35 million after interest and taxes. The company presently has 24 million shares of common stock issued and outstanding. Dividend payments are expected to increase from the present level of $14 million to $15 million. The company expects its current asset needs to increase from a current level of $26 million to $29 million. Current liabilities, excluding short-term bank borrowings, are expected to increase from $17 million to $19 million. Interest payments are $5 million next year, and long-term debt retirement obligations are $7 million next year. Depreciation next year is expected to be $11 million on the company’s financial statements, but the company will report depreciation of $14 million for tax purposes.
How much external financing is required by Berea for the coming year? Enter your answer in millions. For example, an answer of $1…
Berea Resources is planning a$75million capital expenditure program for the coming vear. Next year, Berea expects to report to the IR5 earnings of s40 milion after interest and tanes The company presently has 22 milion shares of commoo stock issued and outstanding. Dividend payments are expected to increase from the present level of s8 millon co 512 manion, The company expects its current asset needs to increase from a current level of$22millon to$27malion, Current liabilibes, exduding short-tern bank berrowirgs, are expected to incease from$13million to$18milion. Interest payments are s5 milion next year, and long-term debt retiremert obligations are$6million next year. Deoreciation next year is expectad to be$16million on the company's financial statements, but the company will report depreciation of$19million for tax purposes. How much extemal financing is required by Berea for the coming yean? Enter your answer in malions. For example, an answer of tt milion should be enternd as 1,…
The Danville Company is considering a $50 million expansion (capital expenditure) program next year. The company wants to determine approximately how much additional financing will be needed if the expansion program is undertaken. Next year the company expects to earn $25 million after interest and taxes. The company also plans to increase its dividends from $5 million to $7 million. If the expansion program is accepted, the company expects working capital requirements to increase by approximately $8 million next year. Long-term debt retirement obligations total $3 million next year and depreciation is expected to be $13 million. No fixed assets are expected to be sold next year.
a. $30 million
b. $43 million
c. $32 million
d. $22 million
Chapter 4 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
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
- Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?arrow_forwardTowson Industries is considering an investment of $256,950 that is expected to generate returns of $90,000 per year for each of the next four years. What Is the Investments internal rate of return?arrow_forwardConsolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.arrow_forward
- The Podrasky Corporation is considering a $250 million expansion (capital expenditure) program next year. The company currently has $400 million in net fixed assets on its books. Next year, the company expects to earn $70 million after interest and taxes. The company also expects to maintain its present level of dividends, which is $20 million. If the expansion program is accepted, the company expects its inventory and accounts receivable each to increase by approximately $25 million next year. Long-term debt retirement obligations total $9 million for next year, and depreciation is expected to be $75 million. The company does not expect to sell any fixed assets next year. The company maintains a cash balance of $5 million, which is sufficient for its present operations. If the expansion is accepted, the company feels it should increase its year-end cash balance to $7 million because of the increased level of activities. For planning purposes, assume no other cash flow changes for next…arrow_forwardXYZ Corporation is considering an expansion project that will produce $90,000 worth of annual operating cash flows for the next 4 years. During the life of this project, the firm’s CFO expects inventory to increase by $35,000 and also expects accounts receivable to decrease by $10,000. The CFO believes that accounts payable will increase by $20,000. At the end of the project (year 4), the CFO assumes that net working capital will return to its normal level. The project requires the purchase of machinery at an initial cost of $70,000. Machinery installation costs are $10,000. This machine will be depreciated straight-line to a zero book value over the life of the project, but can be salvaged at the end of the project (year 4) creating a $30,000 before-tax cash flow. The company also owns land that will be used for the purpose of this expansion project. Luckily, the company bought this land pre-COVID, 3 years ago for only $25,000. At the time of purchase, the company paid $6,000 to level…arrow_forwardPearl Corp. is expected to have an EBIT of $2,900,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $130,000, and $170,000, respectively. All are expected to grow at 19 percent per year for four years. The company currently has $15,000,000 in debt and 1,300,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3 percent indefinitely. The company’s WACC is 8.5 percent and the tax rate is 21 percent. What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)arrow_forward
- Crarytown Motors is expected to have an EBIT of $680,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $45,000, $9,000, and $40,000respectively. All cash flow items are expected to grow at 6 percent per year for two years. After Year 3, the CFA is expected to grow at 3 percent indefinitely. The company currently has $3.5 million in debt and 250,000 shares outstanding The company's WACC is 9.5 percent and the tax rate is 20 percent. What is the present value of terminal value? Show your steps.arrow_forwardA corporation is evaluating the relevant cash flows for a capital budgeting decision and must estimate the terminal cash flow. The proposed machine will be disposed of at the end of its usable life of five years at an estimated sale price of $20937. The machine has an original purchase price of $16086, installation cost of $1795, and will be depreciated under the five-year MACRS. Net working capital is expected to decline by $4322. The firm has a 40 percent tax rate on ordinary income and long-term capital gain. The terminal cash flow is:arrow_forwardGarfield Inc. is considering a 10-year capital investment project with forecasted revenues of $40,000 per year and forecasted cash operating expenses of $29,000 per year. The initial cost of the equipment for the project is $23,000, and Garfield expects to sell the equipment for $9,000 at the end of the tenth year. The equipment will be depreciated over 7 years. The project requires a working capital investment of $7,000 at its inception and another $5,000 at the end of year 5. Assuming a 40% marginal tax rate, the expected net cash flow from the project in the tenth year is (D) * A. $32,000 B. $24,000 C. $20,000 D. $11,000arrow_forward
- Tennessee Corporation is analyzing a capital expenditure that will involve a cash outlay of $109,332. Estimated cash flows are expected to be $36,000 annually for 4 years. The present value factors for an annuity of $1 for 4 years at interest of 10%, 12%, 14%, and 15% are 3.170, 3.037, 2.914, and 2.855, respectively. The internal rate of return for this investment isarrow_forwardGoodFish Corporation is considering a new project with a four-year useful life. The initial investment on this project is $1,200,000 immediately. The future cash flows associated with this project are $650,000, $650,000, $650,000, and $856,000 in years 1, 2, 3 and 4, respectively. GoodFish has a target debt–equity ratio of 3, a cost of equity of 10 percent, and a pretax cost of debt of 8 percent. The tax rate is 25%. What is the NPV of this project? A. $1,158,843.73 B. $1,077,782.13 C. $905,193.80 D. $1,051,753.51arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
How to build an investment portfolio; Author: The Finance Storyteller;https://www.youtube.com/watch?v=K4mWd2zBYVk;License: Standard Youtube License