Given the following information, which of the following statements is most FALSE? Historical Yr Projected Yr Sales 185,000 220,000 EBIT 116,000 NI 60,000 140,000 75,190 O a. The degree of total leverage is 1.4153. O b. The degree of operating leverage is 1.0936. The degree of financial la 5004
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- If the profit margin is 0.2158, asset turnover is 0.5389 and financial leverage is 1.2047, what is the return on equity? Multiple Choice 0.1163 0.1401 0.6492 0.5389Give 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).What happens to ROE for Firm U and Firm L if EBIT falls to $1,600? What happens if EBIT falls to $1,200? What is the after-tax cost of debt? What does this imply about the impact of leverage on risk and return?
- Consider a position consisting of a $315,380 investment in Oracle Corporation (ORCL) and a $271,440 investment in NVIDIA Corporation (NVDA). Suppose that the daily volatilities of these two assets are 4.14% and 5.71% respectively and that the coefficient of correlation between their return is 0.6778. With an assumption that it follows the normally distributed returns, the 27-day 99% Value at Risk (VaR) for NVIDIA Corporation (NVDA) is closest to A. $187,355.52. B. $157,830.54. C. $124,900.63. D. $100,900.64.The following table provides information relating to Omega Ltd, as well as the market portfolio. The risk-free rate of return is 3.4% . Asset Excess Return Variance Beta Omega 12% 0.021904 1.4 M 8.1% 0.010201 1 What is Omega's M2 value? a. 7.41% b. 11.59% c. 8.99% d. 9.27% What is Omega's Sharpe Ratio? a. 0.061 b. 0.811 c. 0.086 d. 0.581 please explain the calculation step by stepwhich one is correct please confirm? QUESTION 7 A firm that has a 2.5 DOL (degree of operating leverage) would find that an 8% increase in EBIT would result from a ____ increase in sales. a. 3.2% b. 5.4% c. 20.0% d. 2.0%
- You have the following initial information on which to base your calculations and discussion: Debt yield = 2.6% Required Rate of Return on Equity = 12% Expected return on S&P500 = 10% Risk-free rate (rF) = 1.5% Inflation = 2.5% Corporate tax rate (TC) = 30% Current long-term and target debt-equity ratio (D:E) = 1:3 a. What is the unlevered cost of equity (rE*) for this firm? Assume that the management of the firm is considering a leveraged buyout of the above company. They believe that they can gear the company to a higher level due to their ability to extract efficiencies from the firm’s operations. Thus, they wish to use a target debt-equity ratio of 3:1 in their valuation calculations. b. What would the levered cost of equity equal for this firm at a debt-equity ratio (D:E) of 3:1? c. What would the required rate of return for the company equal if it were to be acquired under the leveraged buyout structure (i.e., what would the estimated firm WACC equal to under a…Financial Leverage of the firm is 6 and combined leverage is 3. Then what will be the operating leverage? O a. 2 O b. 1 O c. Not possible O d. 3Suppose two asset returns are described by a 1-factor model = 2% + 0.6f + ej r2= 2% + 0.6f+ e2 where the volatility of fis 30% and the volatility of e and ez is 20%. What is the covariance of r and r2? (Nearest 0.0001)
- Use the hamada equation to calculate the unlevered beta for AGP Corporation, assuming the following data: Levered beta = b = 1.4; T = 40%; wd = 45%. (0.939) suppose rRF = 6% and RPM = 5%. What would be the cost of equity of it had no debt?Assume that cost of debt = 8%; unlevered cost of capital = 10%; systematic risk of the asset is 1.5. What are the values of the unlevered and levered firms?You have the following initial information on which to base your calculations and discussion: Debt yield = 2.5% Required Rate of Return on Equity = 13% Expected return on S&P500 = 8% Risk-free rate (rF) = 1.5% Inflation = 2.5% Corporate tax rate (TC) = 30% Current long-term and target debt-equity ratio (D:E) = 1:3 a. What is the unlevered cost of equity (rE*) for this firm? Assume that the management of the firm is considering a leveraged buyout of the above company. They believe that they can gear the company to a higher level due to their ability to extract efficiencies from the firm’s operations. Thus, they wish to use a target debt-equity ratio of 3:1 in their valuation calculations.