1) An investor is considering starting a new business. The company would require$475,000 of assets, and it would be financed entirely with common stock. Theinvestor will go forward only if she thinks the firm can provide a 13.5% return onthe invested capital, which means that the firm must have a ROE of 13.5%. Howmuch net income must be expected to warrant starting the business?Netincome =2) Pace Corp.'s assets are $625,000, and its total debt outstanding is $185,000. Thenew CFO wants to employ a debt ratio of 55%. How much debt must the companyadd or subtract to achieve the target debt ratio?29,6Debt Ratio total debttotal Asset3) Orono Corp.'s sales last year were $435,000, its operating costs were $362,500,and its interest charges were $12,500. What was the firm's times interest earned(TIE) ratio?TIF = earning before tax or Int29I=362500125004) Nikko Corp.'s total common equity at the end of last year was $305,000 and its netincome after taxes was $60,000. What was its ROE?60 000ROE NetPatTE196730500018500062500022750315000-5) Branch Corp.'s total assets at the end of last year were $315,000 and its neincome after taxes was $22,750. What was its return on total assets?ROA - NetProfitTA= 0,672

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Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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An investor is considering starting a new business. The company would require $475,000 of assets, and itwould be financed entirely with common stock. The investor will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have an ROE of 13.5%. How much net income must be expected to warrant starting the business? Please show work in excel
An investor is considering starting a new business. The company would require $500,000 of assets, and it would be financed entirely with common stock. The investor will go forward only if she thinks the firm can provide a 15.0% return on the invested capital, which means that the firm must have an ROE of 15.0%. How much net income must be expected to warrant starting the business?
Your sister is thinking about starting a new business. The company would require $300,000 of assets, and it would be financed entirely with common stock. She will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have an ROE of 13.5%. How much net income must be expected to warrant starting the business? a. $44,145 b. $38,475 c. $33,210 d. $40,500 e. $41,310
Lana is thinking about making an iventment in a new venture called BluePearl - after performing an analysis of similar firms, she discovered several other firms (3) with the following Enterprise Value to FCF ratios: Firm 1: 5.9 Firm 2: 7.6 Firm 3: 9.1 The cashflows for BluePearl this year are expected to be $1,300,000. If BluePearl doesn't have any debt or cash currently, and 700,000 shares outstanding - what is the Price Per Share for BluePearl?
As the general manager of a firm, you are presented with an investment proposal from one of your divisions. Its net present value, if discounted at the cost of capital for your firm (which is 15 percent), is $ 1 00,000, and its internal rate of return is 20 percent. (a) What are the economic interpretations of the net present value and internal rate of return figures? In other words, what do they mean? (b) What, if any, additional information would you like to have before approving the project?
You work for the CEO of a new company that plans to manufacture and sell a new product, a watch that has an embedded TV set and a magnifying glass crystal. The issue now is how to finance the company, with only equity or with a mix of debt and equity. Expected operating income is P400,000. Other data for the firm are shown below. How much higher or lower will the firm's expected ROE be if it uses some debt rather than all equity, i.e., what is ROEL − ROEU?
You work for the CEO of a new company that plans to manufacture and sell a new type of laptop computer. The issue now is how to finance the company, with only equity or with a mix of debt and equity. Expected operating income is $690,000. Other data for the firm are shown below. How much higher or lower will the firm's expected EPS be if it uses some debt rather than only equity, i.e., what is EPSL - EPSU? 0% Debt, U 60% Debt, L Oper. income (EBIT) $690,000 $690,000 Required investment $2,500,000 $2,500,000 % Debt 0.0% 60.0% $ of Debt $0.00 $1,500,000 $ of Common equity $2,500,000 $1,000,000 Shares issued, $10/share 250,000 100,000 Interest rate NA 10.00% Tax rate 35% 35% Select one: a. $1.29 b. $1.97 c. $2.23 d. $1.63 e. $1.72
A firm's financial managers are evaluating two potential investments with a cost of $10,000 each. They forecast returns of $3,000 per year for 5 years for Investment A and $4,000 per year for 5 years for Investment B. The returns are more uncertain for B than for A. Which of the following is true? Investment A is better than B according to shareholder wealth maximization criterion. Investment B is better than A according to shareholder wealth maximization criterion. Investment A is better than B according to the profit maximization criterion. Investment B is better than A according to the profit maximization criterion.
A)Company Z is a computer manufacturing company that is considering diversifying into financial services. This will require an investment of £100 million and this is to be raised via an equity issue. Given the following information, calculate the weighted average cost of capital (WACC) making sure that you clearly state any assumptions made: Dividend per share, d0 = 10p.The market price per share, PE = 108p cumulative div.Earnings per share, eps = 15p.Book Value of Capital Employed = £8,400,000.There are 28 million shares in issue.£30m. 17% irredeemable debt currently quoted at £120 ex int. 800,000, 8% redeemable debentures which are redeemablein 4 years’ time and have a current market price of £82.50 ex int. £5m. 7-year term loan at 5% over base.Bank base rate = 11%.Corporation tax = 30%. B)What assumptions lie behind the use of the WACC as a discount rate in investment appraisal. C)In light of the above assumptions and the answer to part (a), is it safe for Company Z to use the…
You want to open a business that will require you to raise $5 million . If undertaken, the present value of the business is $20 If potential equity investors believe that you will behave opportunis- tically and award yourself an excessive salary of $2 million, what percentage ownership will they require in order to invest the $5 million in your idea? Round your answer to the nearest tenth of a percent.
You work for the CEO of a new company that plans to manufacture and sell a new type of laptop computer. The issue now is how to finance the company, with only equity or with a mix of debt and equity. Expected operating income is $810,000. Other data for the firm are shown below. How much higher or lower will the firm's expected EPS be if it uses some debt rather than only equity, i. e., what is EPSL - EPSU? 0% Debt, U 60% Debt, L Oper. income (EBIT) $810,000 $810,000 Required investment $ 2,500,000 $2,500,000 % Debt 0.0% 60.0% $ of Debt $0.00 $1,500,000 $ of Common equity $2,500,000 $ 1,000,000 Shares issued, $10/share 250,000 100, 000 Interest rate NA 10.00% Tax rate 25% 25% a. $0.75 b. $ 2.52 c. $3.36 d. $4.10 e. $2.90
c) suppose Zenos Manufacturing is contemplating investing in a new business. An existing company in the target industry has an equity beta of 0.90 but is very conservatively financed with a market value, equity-to-value ratio 95%. Zenos intends to use an equity-to-value ratio of 30%. What beta should Zeno use in estimating a cost of capital in the new business. d) State a reason that the cost of external equity is greater than the cost of internal equity?

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