Ashely Corporation has 80 million outstanding equity shares and the following projected financial information for the next four years. The tax rate is 25%. Ashely's cost of capital is 13%. Assume Ashely is fullyfinanced with equity.Year1234Earnings Forecast ($millions)1 Sales474.28520.31571.88728.99269.53308.19335.68490.252 Cost of Goods Sold102.05108.25105.24135.763 Selling, General & Admin.4 Depreciation5 Net Income12.0015.0012,5015.5068.0366.6588.8565.61Capital Requirements ($millions)6 Capital Expenditures7 Increase in Net Working Capital8.8011.5010.6012.506.807.208.259.15Ashely's CFO wants to use P/E ratio to value the stock's terminal value in year 4. The CFO forecasts the industry P/E ratio in year 4 is 20. Based on the forecasted P/E ratio, what is the stock price of Ashely today(year 0)?O A. $6.98O B. $12.56O C. $13.13O D. $2.50

Cost of capital (r) = 13% Tax rate (T) = 25% PE ratio in year 4 = 20 Shares outstanding (n) = 80…

Ashely Corporation has 80 million outstanding equity shares and the following projected financial information for the next four years. The tax rate is 25%. Ashely's cost of capital is 13%. Assume Ashely is fully financed with equity. Year 1 4. Earnings Forecast ($millions) 1 Sales 2 Cost of Goods Sold 571.88 335.68 105.24 12.50 474.28 520.31 728.99 269.53 308.19 490.25 108.25 135.76 3 Selling, General & Admin. 4 Depreciation 5 Net Income Capital Requirements ($millions) 6 Capital Expenditures 7 Increase in Net Working Capital 102.05 15.50 15.00 66.65 12,00 68.03 88.85 65.61 10.60 12.50 8.80 6.80 11.50 7.20 8.25 9.15 Ashely's CFO wants to use P/E ratio to value the stock's terminal value in year 4. The CFO forecasts the industry P/E ratio in year 4 is 20. Based on the forecasted P/E ratio, what is the stock price of Ashely today (year 0)? O A. $6.98 O B. $12.56 OC. $13.13 O D. $2.50

Ashely Corporation has 80 million outstanding equity shares and the following projected financial information for the next four years. The tax rate is 25%. Ashely's cost of capital is 13%. Assume Ashely is fully financed with equity. Year 1 4. Earnings Forecast ($millions) 1 Sales 2 Cost of Goods Sold 571.88 335.68 105.24 12.50 474.28 520.31 728.99 269.53 308.19 490.25 108.25 135.76 3 Selling, General & Admin. 4 Depreciation 5 Net Income Capital Requirements ($millions) 6 Capital Expenditures 7 Increase in Net Working Capital 102.05 15.50 15.00 66.65 12,00 68.03 88.85 65.61 10.60 12.50 8.80 6.80 11.50 7.20 8.25 9.15 Ashely's CFO wants to use P/E ratio to value the stock's terminal value in year 4. The CFO forecasts the industry P/E ratio in year 4 is 20. Based on the forecasted P/E ratio, what is the stock price of Ashely today (year 0)? O A. $6.98 O B. $12.56 OC. $13.13 O D. $2.50

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

See similar textbooks

Similar questions

Manshukh
The Corp. is expected to pay $1.85 dividend a year and the dividend is expected to grow at a constant rate of 4.5% a year and the common stock currently sells for $35 a share before tax cost the debt is 5.5% and the tax rate is 40% the target capital structure consist of 40% debt and 60% common equity what is the companies WACC?
8
Please answer this MCQ
XYZ Electronics Inc. is all equity financed and generates perpetual annual EBIT of $600. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. Assume that XYZ has a 100% payout rate, 5,000 shares outstanding, and that shareholders require a return of 5%. Assume that the tax rate is 0%. XYZ is considering an open market stock repurchase. It plans to buy 20% of its outstanding shares at the price of $4.00 per share. The repurchased shares will be cancelled. It will finance the repurchase by issuing perpetual bonds with a coupon rate (and yield) of 3%. Assume that the tax rate is 0%. If XYZ goes ahead with the repurchase, then what is the value of the company after the repurchase is complete?
XYZ anticipates earning $1,500,000 and paying $300,000 in dividends this year. XYZ's capital structure is 20% debt and 80% equity and its tax rate is 35%. Compute the equity breakpoint to the nearest dollar. Your Answer:
Ashely Corporation has 80 million outstanding equity shares and the following projected financial information for the next four years. The tax rate is 25%. Ashely’s cost of capital is 13%. Assume Ashely is fully financed with equity. Year 1 2 3 4 Earnings Forecast ($millions) 1 Sales 474.28 520.31 571.88 728.99 2 Cost of Goods Sold 269.53 308.19 335.68 490.25 3 Selling, General & Admin. 102.05 108.25 105.24 135.76 4 Depreciation 12.00 15.00 12.50 15.50 5 Net Income 68.03 66.65 88.85 65.61 Capital Requirements ($millions) 6 Capital Expenditures 8.80 11.50 10.60 12.50 7 Increase in Net Working Capital 6.80 7.20 8.25 9.15 Ashely’s CFO wants to use P/E ratio to value the stock’s terminal value in year 4. The CFO forecasts the industry P/E ratio in year 4 is 20. Based on the forecasted P/E ratio, what is the…
Assume that you are on the financial staff of Jerry Inc., and you have collected the following data: The yield on the company's outstanding bonds is 8.75%; its tax rate is 40%; the next expected dividend is $0.75 a share; the dividend is expected to grow at a constant rate of 7.00% a year; the price of the stock is $15.00 per share; and the target capital structure is 40% debt and 60% common equity. What is the firm's WACC? 9.04% 9.80% 8.44% O7.64% 9.30%
Crane Sporting is a listed company in New York. Its current before-interest, after-tax operating cash flow is $200 million. The cash flows are expected to grow at 8% per annum over the next three years, after which the growth will fall to 3% per annum and stay at this rate forever. The following information is also available: Tax rate 30% Risk-free rate 5% Market return 15% Equity beta 2 Cost of debt 10% D/E 60% question Using the “free cash flow” methodology, the value of Crane Sporting is closest to: A. $1,531 million B. $1,072 million C. $717 million D. None of the above
Assume that CVC Corp.'s marginal tax rate is 35%, investors in CVC pay a 15% tax rate on income from equity and a 35% tax rate on interest income. CVC is equally likely to have EBIT this coming year of $20 million, $25 million, or $30 million. What is the effective tax advantage of debt if CVC has interest expenses of $8 million this coming year?
b. ABC Inc. finances its operations with 40 percent debt and 60 percent equity. Its net income is $30 million and it has a dividend payout ratio of 30%. Its capital budget is B = $100 million this year. The annual yield on the company's debt is 7% and the company's tax rate is T = 30%. The company's common stock trades at Po = $100 per share, and its current dividend of Do = $4 per share is expected to grow at a constant rate of g = 5% a year. The floatation cost of external equity, if issued, is F = 1.5% of the dollar amount issued. What is the company's weighted average cost of capital?
Intro Munich Re Inc. is expected to pay a dividend of $4.82 in one year, which is expected to grow by 4% a year forever. The stock currently sells for $69 a share. The before-tax cost of debt is 7% and the tax rate is 34%. The target capital structure consists of 20% debt and 80% equity. Part 1 What is the company's weighted average cost of capital? 3+ decimals Submit

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS