ardial GreenLights, a manufacturer of energy-efficient lighting solutions, has had such success with its new products that it is planning to substantially expand its manufacturing capacity with a $15 million investment in new machinery. Gardial plans to maintain its current 30% debt-to-total-assets ratio for its capital structure and to maintain its dividend policy in which at the end of each year it distributes 55% of the year’s net income. This year’s net income was $8 million. How much external equity must Gardial seek now to expand as planned?

ardial GreenLights, a manufacturer of energy-efficient lighting solutions, has had such success with its new products that it is planning to substantially expand its manufacturing capacity with a $15 million investment in new machinery. Gardial plans to maintain its current 30% debt-to-total-assets ratio for its capital structure and to maintain its dividend policy in which at the end of each year it distributes 55% of the year’s net income. This year’s net income was $8 million. How much external equity must Gardial seek now to expand as planned?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter4: Financial Planning And Forecasting

Section: Chapter Questions

Problem 9P

See similar textbooks

Similar questions

Gardial GreenLights, a manufacturer of energy-efficient lighting solutions, has had such success with its new products that it is planning to substantially expand its manufacturing capacity with a $10 million investment in new machinery. Gardial plans to maintain its current 20% debt-to-total-assets ratio for its capital structure and to maintain its dividend policy in which at the end of each year it distributes 35% of the year's net income. This year's net income was $8 million. How much external equity must Gardial seek now to expand as planned? Enter your answer in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answer to two decimal places. million $
Lente, a manufacturer of energy-efficient lighting solutions, has had such success with its new products that it is planning to substantially expand its manufacturing capacity with a P15 million investment in new machinery. Lente plans to maintain its current 30% debt-to-total-assets ratio for its capital structure and to maintain its dividend policy in which at the end of each year it distributes 55% of the year’s net income. This year’s net income was P8 million. How much external equity must Lente seek now to expand as planned?
Gardial GreenLights, a manufacturer of energy-efficient lighting solutions,has had such success with its new products that it is planning to substantially expand its manufacturing capacity with a $15 million investment innew machinery. Gardial plans to maintain its current 30% debt-to-totalassets ratio for its capital structure and to maintain its dividend policy inwhich at the end of each year it distributes 55% of the year’s net income.This year’s net income was $8 million. How much external equity mustGardial seek now to expand as planned?
Derry Corporation is expected to have an EBIT of $3,400,000 next year. Increases in depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $155,000, and $195,000, respectively. All are expected to grow at 18 percent per year for four years. The company currently has $17,500,000 in debt and 1,350,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 2.5 percent indefinitely. The company's WACC is 9.1 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.) Share price
Payne Products had $1.6 million in sales revenues in the most recent year and expects sales growth to be 25% this year. Payne would like to determine the effect of various current assets policies on its financial performance. Payne has $1 million of fixed assets and intends to keep its debt ratio at its historical level of 40%. Payne’s debt interest rate is currently 8%. You are to evaluate three different current asset policies: (1) a restricted policy in which current assets are 45% of projected sales, (2) a moderate policy with 50% of sales tied up in current assets, and (3) a relaxed policy requiring current assets of 60% of sales. Earnings before interest and taxes are expected to be 12% of sales. Payne’s tax rate is 25%. What is the expected return on equity under each current asset level? In this problem, we have assumed that the level of expected sales is independent of current asset policy. Is this a valid assumption? Why or why not? How would the overall risk of…
Payne Products had $2.4 million in sales revenues in the most recent year and expects sales growth to be 25% this year. Payne would like to determine the effect of various current assets policies on its financial performance. Payne has $2 million of fixed assets and intends to keep its debt ratio at its historical level of 60%. Payne's debt interest rate is currently 10%. You are to evaluate three different current asset policies: (1) a restricted policy in which current assets are 45% of projected sales, (2) a moderate policy with 50% of sales tied up in current assets, and (3) a relaxed policy requiring current assets of 60% of sales. Earnings before interest and taxes are expected to be 14% of sales. Payne's tax rate is 35%, a. What is the expected return on equity under each current asset level? Round your answers to two decimal places. Tight policy % 76.77 Moderate policy Relaxed policy 9.04 5.05 1% b. In this problem, we have assumed that the level of expected sales is…
Derry Corporation is expected to have an EBIT of $3,300,000 next year. Increases in depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $150,000, and $190,000, respectively. All are expected to grow at 17 percent per year for four years. The company currently has $17,000,000 in debt and 1,500,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.5 percent indefinitely. The company’s WACC is 8.9 percent and the tax rate is 25 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.) Please avoid answers in images thank you
Derry Corporation is expected to have an EBIT of $2,600,000 next year. Increases in depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $115,000, and $155,000, respectively. All are expected to grow at 16 percent per year for four years. The company currently has $13,500,000 in debt and 1,150,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3 percent indefinitely. The company's WACC is 9.2 percent and the tax rate is 23 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.) Answer is complete but not entirely correct. Share price $ 41.86
The president of Semiconductor Manufacturing International Corporation made this statement in the company’s annual report: “United’s primary goal is to increase the value of the common stockholders’ equity over time.” Later in the report, the following announcements were made: a. The company contributed $1.5 million to the symphony orchestra in San Francisco, where it is headquartered. b. The company is increasing its relative use of debt. Whereas assets were formerly financed with 35 percent debt and 65 per-cent equity, henceforth the financing mix will be 50–50. c. The company has been paying out half of its earnings as dividends and retaining the other half. Henceforth, it will pay out only 30 percent as dividends. Discuss how Semiconductor Manufacturing International Corporation stockholders, customers, and the labor force will react to each of these actions and then explain how each action might affect United’s stock price.
Phosfranc Inc. is valuing the equity of a company using the free cash flow from equity, FCFE, approach and has estimated that the FCFE in the next three years will be $6.25, $7.70, and $8.36 million respectively. Beginning in year 4, the company expects the cash flows to increase at a rate of 4 percent per year for the indefinite future. It is estimated that the cost of equity is 12 percent. What is the value of equity in this company? (Do not round intermediate computations. Round final answer to the nearest million.) A) $77 million B) $95 million C) $109 million D) $60 million
Plato, Inc., expects to have net income of $5,000,000 during the next year. Plato’s target capital structure is 35 percent debt and 65 percent equity. The company’s director of capital budgeting has determined that the optimal capital budget for the coming year is $6,000,000. If Plato follows a residual distribution policy (with all distributions in the form of dividends) to determine the coming year’s dividend, then what is Plato’s payout ratio? 38% 42% 58% 33% 22%
You have been asked to value Brilliant Enterprises, a publicly traded IT services firm, and have collected the following information: After-tax operating income last year = $100 million Net income last year = $82.5 million Book value of equity at start of this year = $750 million Book value of debt at start of this year = $250 million Capital expenditure last year = $80 million Depreciation last year = $30 million Increase in non-cash working capital last year = $10 million a) Assuming that Brilliant Enterprises will maintain its return on capital and reinvestment rate from last year for the next 3 years, estimate the free cash flow for the company for each of the next 3 years. b) After year 3, Brilliant expects its growth rate to decline to 3% and the return on capital to be 9% in perpetuity. Assuming that its cost of capital is 8%, estimate the terminal value at the end of the third year. c) Assuming that Brilliant has a cost of capital of 10% for the next 3…