Price-Earnings Ratio Consider Pacific Energy Company and Atlantic Energy, Inc., both of which reported earnings of
a. What is the current PE ratio for each company?
b. Pacific Energy Company has a new project that will generate additional earnings of
c. Atlantic Energy has a new project that will increase earnings by
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CORPORATE FINANCE ACCESS CARD
- You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its future investments in new plant and working capital: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 30% Investment Answer is complete but not entirely correct. a. Total value b. Laputa's equity 1 $ 86 26 60 18 15 $ $ Year 629 x 377 2 $ 106 36 70 21 18 3 $ 121 41 80 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed 60% by equity and 40 % by debt. Its cost of equity is 17%, its debt yields 8%, and it pays corporate tax at 30%. 24 21 a. Estimate the company's total value. Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount. b. What is the value of Laputa's equity? Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest…arrow_forwardCalculating Projected Net Income. A proposed new investment has projected sales of $585,000. Variable costs are 44 percent of sales, and fixed costs are $187,000; depreciation is $51,000. Prepare a pro forma income statement assuming tax rate of 21 percent. What is the projected net income?arrow_forwardTopic: ENVIRONMENT OF THE FIRM AND OPTIMIZATION TECHNIQUES (Managerial Economics) For the foreseeable future, Gama-X, Incorporated is expected to expand at a rate of 5% each year. Gama-current X's profits are Php100,000, which have not been paid out as dividends. Determine the value of the company if the market interest rate is 7%. Show supporting calculations.arrow_forward
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- 1.A Assume that a Peruvian company, DMB LLC, just reported its earnings this year. The reported revenue was $10 million and the reported cost was $9 million. The discount rate is 8%. Mark ALL the CORRECT statements. For this question, profit = revenue - cost. Hint: Apply the Gordon Formula to the profits of the firm. a) If the profit is expected to be constant, the present value of all the company's future profits is $125 million. b) If the profit is expected to grow 3% annually, the present value of all the company's future profits is $20 million. c) If the profit is expected to grow 4% annually, the present value of all the company's future profits is $25.75 million. d) If the profit is expected to grow 6% annually, the present value of all the company's future profits is $50 million. e) If the profit is expected to grow 10% annually, the present value of all the company's future profits is negative.arrow_forwardYou need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its future investments in new plant and working capital: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 30% Investment Answer is complete but not entirely correct. a. Total value b. Laputa's equity 1 $ 73 33 40 $ $ 12 19 476 285 Year 2 $93 43 50 15 22 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed 60% by equity and 40% by debt. Its cost of equity is 18%, its debt yields 9%, and it pays corporate tax at 30%. 3 $ 108 48 60 18 25 a. Estimate the company's total value. Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount. b. What is the value of Laputa's equity? Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole…arrow_forwardLoreto Inc. has the following financial ratios: asset turnover = 1.60; net profit margin (i.e., net income/sales) = 6%; payout ratio = 30%; equity/assets = 0.50. a. What is Loreto's sustainable growth rate? b. What is its internal growth rate? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) A. Sustainable growth rate _______% B. Internal growth rate ______%arrow_forward
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