Braintree Corporation has $5 billion in assets, $4 billion in equity, and earned a profit of $100 million last year as the economy boomed. Senior management proposes paying themselves a large cash bonus in recognition of their performance. As a member of Braintree's board of directors, how would you respond to this proposal?
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- Derian, I anticipate an extended discussion on how to best leverage our financial capital to create competitive advantage during our next board meeting. With this in mind, I'd like to better understand the financial obligations of Erie. Industry experts are estimating Erie's balance sheet for the upcoming year to show: • Total Assets of $184,225 • Total Common Stock of $36,039 • Cash of $26,722 Retained Earnings of $52,783 What do we expect Erie's total liabilities to be? ● Michelle Cho Board Member, Strategy | Andrews Corporation $104,720 $95,403 $131,442 $68,681 RespondYou 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…Suppose you are the president of a large corporation located in Seattle, Washington. How do you think the stockholders will react if you decide to increase the proportion of the company’s assets that is financed with debt from 35 percent to 50 percent? In other words, what if the firm used much more debt to finance its assets?
- The Hastings Sugar Corporation has the following pattern of net income each year, and associated capital expenditure projects. The firm can earn a higher return on the projects than the stockholders could earn if the funds were paid out in the form of dividends. Year Net Income Profitable CapitalExpenditure 1 $ 11 million $ 8 million 2 24 million 11 million 3 9 million 7 million 4 19 million 7 million 5 23 million 8 million The Hastings Corporation has 2 million shares outstanding. (The following questions are separate from each other). If the marginal principle of retained earnings is applied, how much in total cash dividends will be paid over the five years? (Enter your answer in millions.) If the firm simply uses a payout ratio of 40 percent of net income, how much in total cash dividends will be paid? (Enter your answer in millions and round your answer to 1…The Hastings Sugar Corporation has the following pattern of net income each year, and associated capital expenditure projects. The firm can earn a higher return on the projects than the stockholders could earn if the funds were paid out in the form of dividends. Profitable Capital Expenditure Year 1 Net Income $11 million $ 8 million 2 24 million 3 9 million 11 million 7 million 4 19 million 7 million 5 23 million 8 million The Hastings Corporation has 2 million shares outstanding (The following questions are separate from each other). a. If the marginal principle of retained earnings is applied, how much in total cash dividends will be paid over the five years? (Enter your answer in millions.) Total cash dividends million b. If the firm simply uses a payout ratio of 40 percent of net income, how much in total cash dividends will be paid? (Enter your answer in millions and round your answer to 1 decimal place.) Total cash dividends millionThe Hastings Sugar Corporation has the following pattern of net income each year, and associated capital expenditure projects. The firm can earn a higher return on the projects than the stockholders could earn if the funds were paid out in the form of dividends. Year Net Income Profitable CapitalExpenditure 1 $ 13 million $ 7 million 2 24 million 11 million 3 17 million 6 million 4 18 million 8 million 5 22 million 8 million The Hastings Corporation has 2 million shares outstanding. (The following questions are separate from each other). a. If the marginal principle of retained earnings is applied, how much in total cash dividends will be paid over the five years? (Enter your answer in millions.) b. If the firm simply uses a payout ratio of 50 percent of net income, how much in total cash dividends will be paid? (Enter your answer in millions and round your answer to 1 decimal place.) c. If the firm pays a 10 percent stock…
- Assume that a company earns $280,000 in profit for the year on $3 million in revenue. The board of directors decides to keep half to pay for dividends and to reinvest the rest in the company. Sixty percent of the retained earnings are invested in non- current assets and the rest, in working capital for growth. Questions bombonima 1. Calculate, as a percentage of revenue, how much would be kept in the in ples company for growth (i.e., working capital and non-current assets) and ToodT TOShow much would be used to pay dividends. 2. Explain who is responsible for deciding how much to retain in the business and how much to pay in dividends. 3. What do you think the board of directors would do if the profit for the year increased to $350,000?Last year Rosenberg Corp. had $195, 000 of assets, S18,775 of net income, and a debt-to-total-assets ratio of 32%. Now suppose the new CFO convinces the president to increase the debt ratio to 48%. Sales and total assets will not be affected, but interest expenses would increase. However, the CFO believes that better cost controls would be sufficient to offset the higher interest expense and thus keep net income unchanged. By how much would the change in the capital structure improve the ROE? Question 5 options: 4.36% 4.57% 4.80% 5.04%Last year Jandik Corp. had $295,000 of assets (which is equal to its total invested capital), $18,750 of net income, and a debt-to-total-capital ratio of 37%. Now suppose the new CFO convinces the president to increase the debt-to-total-capital ratio to 48%. Sales, total assets, and total invested capital will not be affected, but interest expenses would increase. However, the CFO believes that better cost controls would be sufficient to offset the higher interest expense and thus keep net income unchanged. By how much would the change in the capital structure improve the ROE? Do not round your intermediate calculations.
- To estimate Missed Places Inc.'s (MP) external financing needs, the CFO needs to figure out how much equity her firm will have at the end of next year. At the end of the most recent fiscal year, MP's retained earnings were $158,000. The Controller has estimated that over the next year, gross profits will be $360,700, earnings after tax will total $21,400, and MP will pay $12,400 in dividends. What are the estimated retained earnings at the end of next year? (Please show work and explain) Intellus has long-term debt of $5 million, owners' equity of $7.75 million, current assets of $1 million, gross fixed assets of $20 million, and accumulated depreciation of $7 million. What is the firm’s net working capital? (Please show work and explain)Assume you have just been hired as business manager of EdiPizza, a pizza restaurant located adjacent to campus. The company’s EBIT was GH¢500,000 last year, and since the university’s enrollment is capped, EBIT is expected to remain constant (in real terms) over time. Since no expansion capital will be required, EdiPizza plans to pay out all earnings as dividends. The management group owns about 50% of the stock, and the stock is traded in the over-the counter-market. The firm is currently financed with all equity; it has 100,000 shares outstanding; and price of stock is GH¢25 per share. When you took your MBA corporate finance course, your instructor stated that most firms’ owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he encouraged you to pursue the idea. As a first step, assume that you obtained from the firm’s investment banker the following estimated costs of debt for the firm at different capital structures: Percent… Assume you have just been hired as business manager of EdiPizza, a pizza restaurant located adjacent to campus. The company’s EBIT was GH¢500,000 last year, and since the university’s enrollment is capped, EBIT is expected to remain constant (in real terms) over time. Since no expansion capital will be required, EdiPizza plans to pay out all earnings as dividends. The management group owns about 50% of the stock, and the stock is traded in the over-the counter-market. The firm is currently financed with all equity; it has 100,000 shares outstanding; and price of stock is GH¢25 per share. When you took your MBA corporate finance course, your instructor stated that most firms’ owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he encouraged you to pursue the idea. As a first step, assume that you obtained from the firm’s investment banker the following estimated costs of debt for the firm at different capital structures:…
