Question 1
My Subs, Inc., a regional sandwich chain, is considering purchasing a smaller chain, Eastern Pizza, which is currently financed using 30% debt at a cost of 7%. Great Subs' analysts project that the merger will result in incremental free cash flows and interest tax savings of $2 million in Year 1, $4 million in Year 2, $5 million in Year 3, and $117 million in Year 4. (The Year 4 cash flow includes the horizon value of $107 million.) The acquisition would be made immediately, if it is to be undertaken. Eastern's pre-merger beta is 2.0, and its post-merger tax rate would be 34%. The risk-free rate is 4%, and the market risk premium is 6%. What is the appropriate rate to use in discounting the free cash flows and the interest tax savings if you use the Adjusted Present Value approach?,China Hardware, a national hardware chain, is considering purchasing a smaller chain, Eastern Hardware. Dunbar's analysts project that the merger will result in incremental free cash flows and interest tax savings with a combined present value of $92.75 million, and they have determined that the appropriate discount rate for valuing Eastern is 16%. Eastern has 5 million shares outstanding and no debt. Eastern's current price is $16.25 per share. What is the maximum price per share that Dunbar should offer?
Question 2
Question 12 lease: JK company has the following balances on the 2008 B/S: current assets=70,000, long-term assets=250,000, current liability=40,000, long-term debt=130,000, and stockholders equity=150,000. The company has an operating lease contract. It promises to pay a lessor $10,000 annually for the next three years. The company s average borrowing rate (discount rate) is 10%. If the lease is recorded as a capital lease, what will be the long-term asset total? Answer a. about 250,500 b. about 274,868 c. about 285,131 d. about 296,321 Question 13 cc4-1 M4-O3-Current assets: Which one is not a correct practice under the GAAP? Answer a. trading securities are in current assets, but securities held to maturity is in long-term assets (non current) b. Holding gain or loss for trading and available for sale securities are not reported on income statement. c. Holding gain or loss for held-to-maturity securities are estimated at the end of every accounting period d. Generally cash equivalents include the investments purchased within three months of their maturity value. Question 14 Q12-O3-Equity (treasury): The following items discusses the practices related to the treasury stock. Please choose the item that is not a correct practice. Answer a. To increase the stock price, firms may have treasury stocks. b. Treasury stock is the own common share repurchased by the firm. c. The profit from sales of the treasury stocks is recorded as a capital increase. d. Treasury stock is recorded as an asset on B/S Question 15 stock option2: Now FASB required that all employee stock options should be expensed on income statement. On Jan. 2005, AA company granted total $100,000 (fair value) of stock options to the employee. The exercise price is equal to the market price at the grant time. The employees cannot exercise the options until 2007. According to the new requirement, the company should record an expense $50,000 for 2005 and $50,000 for 2006. During 2008, all options are exercised. What is the effect on the free cash flows for 2005? Answer a. increase b. not determinable c. no effect d. decrease Question 16 Q5-O4-offB/S: Which one is false? Answer a. Off-balance sheet financing may be frequently used by firms who has stronger restrictions on bond covenant. b. Off-balance-sheet financing mostly decreases return on assets (ROA) c. Off-balance sheet financing may reduce the total assets and total liabilities on B/S. d. Generally off-balance sheet financing is not ethical in terms of the users. Question 17 Q7-O4-earnings quality and GAAP: Users are looking for firms who can generate more future cash flows. which one may mostly decrease earnings quality when the users examine the earnings figures as the indicator of future cash flows? Answer a. R&D expense b. Credit sales c. Accruals d. Unrealized holding gain or loss. Question 18 earnings conservatism ratio: Which one is the definition (or implication) of earnings conservatism ratio? Answer a. It is the ratio used as a proxy of firm performance b. It implies the effective tax rate for the firm c. It is used to evaluate the degree of aggressiveness in the firm s accounting d. None of the above Question 19 cc4-2 Q11-O3-Option: Under the disclosure provisions of SFAS No. 123, the estimated stock option expense for 2006 would be $15,500 for W Co.. When the company records this expense: Answer a. the capital decreases by 15,500 b. The equity on B/S has no effect. c. The total assets increase by 15,500 d. Retained earnings account has no effect
Question 3
Question 1 Consider the following firm with a capital structure of 15% debt, 80% equity, and 5% preferred stock (all based on market values). The outstanding debt has a yield-to-maturity of 9%, whereas both regular equity and preferred equity are currently priced at $100. The regular annual dividends are expected to be $5 next time growing at 2% annually. Preferred dividends are $1 (non-growing) per year. The firm pays 20% in taxes. Based on this information, what is the overall firm beta of this firm, given a risk free rate of return of 2% and an expected return on the market portfolio equal to 8%? Question 2 Suppose your company is currently using 30% debt in its capital structure. The target level of debt is 50%, and the YTM on debt is currently 9%, but is expected to increase to 9.5% because bankruptcy risk and agency costs. The corporate tax rate is 35% and the return on equity is currently 15%. What is the Rwacc under the new capital structure? Question 3 Consider the following project. Replacement of old equipment for newer and more efficient equipment is expected to yield annual total after-tax cost savings (including any tax shields from depreciation) resulting in operational cash flows of $14 million for 12 years, starting t=1. The new equipment has a cost of $80 million and is depreciated over 10 year according to straight-line methodology. The salvage value at t=12 is $15 million. The corporate tax rate is 30% and the firm has a target debt-to-equity ratio of 0.5. Creditors require 12% return on their debt and the equity beta of the firm is 1.8. The expected return on the S&P 500 index is 12% and on a t-bill is 4%. a) What are the relevant cash flows during each year (t=0,12)? b) What is the firm?s target debt-to-value (leverage) ratio? c) What is the firm?s cost of equity? d) What is the firm?s cost of debt? e) What is the weighted average cost of capital (Rwacc)? f) What is the beta for the entire firm?not just its equity? g) What is the NPV of this project and should they accept it? Question 4 Consider the following project for your firm. An initial investment of $1 million will generate expected unlevered pre-tax cash flows (UCF) of $300,000 per year in perpetuity. The firm will finance this project maintaining its capital structure with equal amounts of debt and equity. Three of your firm?s closest competitors have unlevered betas of respectively 1.2, 1.3, and 1.4. These firms are approximately equal in size. The risk free rate is currently 5%, while the expected return on the S&P 500 index is 14%. The corporate tax rate is 34%. The firm can borrow risk free. a) What is the average unlevered equity beta in the industry? b) What is the levered beta for the project? c) What is Re? d) What is Rwacc? e) What is the NPV of this project using Rwacc? f) How much will they borrow? g) What is the annual interest payment? h) What is the initial equity stake? i) Use the Flow-to-Equity approach to value this project.,Hello, Will my questions be approved?,May I have a response?
Question 4
asked: "REfer to the following information about the painting depatment in the Richardson factory for month of June. richardson factory uses FIFO meathod of inventory costing Beginning goods in process inventory Physical units..............5000 units % complete for material ....70% % complete for labor and overhead....25% material coast for may...$7,350 labor and over hean cost for may...$3,125 products started and cpmpleted: physical units.........40,000units ending goods in process inventory: physical units............4,000 % complete for materials...40% % complete for labor and overhead...10% Manufacturing cost for June: materials..........$96,975 Labor and overhead....$79,470 1A. How many equivalent units of materials wrer added to the beginning inventory to finish those units during june? How many equivalent units of labor and overhead were added to the beginning inventory to finish those units during June? 1B. How many equivalent units of materials were added to the inverntory to get those units to their state of partial cpmpletion? How many equivalent units of labor and over head were added to the ending inventory to het those units to their state of partial completion? 1C. How many equivalent units of materials were added to all units processed during June? How many equivalent units of labor and overhead were added to all units processed druing June? 1D. What was the materials coat per Equivalent unit produced during June? What was the labor and overhesd coast per equivalent unit produced druing June? 1E. What is the total cost of all units that were completed and transferred to finished goods during June? What is the total cost of the ending goods in process inventory? " - Sent to Accounting Expert Tutor on 5/19/2011 at 1:35pm,please show all work. thanks,It should read; Material cost from May...7,350 and labor and overhead cost from May...3,125, instead (for may). sorry,it's been over 30 minutes since I heard from you. Are you still working on the problem? Talk to me,What was my deadline?,Can you tell me what my dead line is? First time user, so I'm not sure what to expect. Should I just wait for it in my E-mail? Please reply.,It is 1:02 am Eastern Time. I still haven't gotten my answers. I better not be charged for this. I no longer need the answeres. I figured it out. You people suck.
Question 5
Must Show ALL work Question 1: (Cost of Capital) 8 points You are provided the following information on a company. The total market value is $40 million. The capital structure, shown here, is considered to be optimal. Accounting Value Market Value Bonds, $1000 par, 6% coupon, 6% YTM $10,000,000 $10,000,000 Preferred Stock, 7%, $100 par, 100,000 shares $10,000,000 $8,000,000 Common Stock, $1 par, 100,000 shares$100,000 Capital in excess of par $400,000 $22,000,000*(all 3) Retained Earnings $13,500,000 * Total market value of common equity a. What is the after-tax cost of debt? (assume the company?s effective tax rate = 40%) b. Assuming a $7 dividend paid annually, what is the required return for preferred shareholders (i.e. component cost of preferred stock)? (assume floatation costs = $0.00) c. Assuming the risk-free rate is 2%, the expected return on the stock market is 9%, and the company's beta is 1.0, what is the required return for common stockholders (i.e., component cost of common stock)? d. What is the company's weighted average cost of capital (WACC)? Question 2: (Capital Budgeting) 9 points The Seattle Corporation has been presented with an investment opportunity which will yield end-of-year cash flows of $30,000 per year in Years 1 through 4, $35,000 per year in Years 5 through 9, and $40,000 in Year 10. This investment will cost the firm $150,000 today, and the firm's cost of capital is 8 percent. a. What is the Payback Period, Discounted Payback Period, NPV, IRR, and MIRR for this investment? b. Should the project be accepted or rejected? Question 3: (Capital Structure) 7 points You have the following data on Joe?s Corporation: EBIT: $1,000,000 Tax rate: 40% Cost of Equity: 10% (before borrowing) 12% (after borrowing) Joe?s is a zero growth firm, and is currently financed entirely with equity (in other words, it currently has no debt). One of the corporate officers has suggested that since interest rates are so low, Joe might be better off if he borrowed some money and used it to buy back stock, thereby making use of debt financing in the firm. He presents the following data in his analysis: Amount of debt proposed: $2,000,000 Interest rate: 6% Cost of equity after the proposal is adopted: 12% Joe has come to you for advice. Prepare an analysis for him that indicates whether or not the proposal should be accepted. (Hint: Compare the value of the firm with no debt and at the proposed debt level similar to the way you did it in homework problem 15-8, but note the amount to borrow is given.) Question 4: (Forecasting) 6 points A firm has the following balance sheet: Cash $ 20 Accounts payable $ 20 Accounts receivable 20 Notes payable 40 Inventory 20 Long-term debt 80 Fixed assets 180 Common stock 80 Retained earnings 20 Total assets $240 Total liabilities & Equity $240 Sales for the year just ended were $500, and fixed assets were used at 80 percent of capacity. Current assets and accounts payable vary directly with sales. Sales are expected to grow by 10 percent next year, the expected net profit margin is 5 percent, and the dividend payout ratio is 60 percent. How much additional funds (AFN) will be needed next year, if any? Question 5: Working Capital Management 6 points The Hamlin Corporation has an inventory conversion period of 60 days, a receivables collection period of 30 days, and a payables deferral period of 28 days. Its annual credit sales are $5,000,000, and its annual credit purchases are $3,500,000. a. What is the length of the firm's cash conversion cycle? b. What is the firm's investment in accounts receivable? c. What is the firm's level of accounts payable? d. Calculate how many times a year the company's inventory is turned over. e. Identify three ways in which the company could reduce its cash conversion cycle? What are possible risks in reducing it? v,Getting a little nervous. Everything okay?,Hello?,So this is totally my fault for not checking the responses... but I just wanted to alert you that I recieved an 11/39 on this assignment.
