Marpor Industries has no debt and expects to generate free cash flows of $16.19 million each year. Marpor believes that if it permanently increases its level of debt to $32.59 million, the risk of financial distress may cause it to lose some customers and receive less favourable terms from its suppliers. As a result, Marpor's expected free cash flows with debt will be only $13.32 million per year. Suppose Marpor's tax rate is 28%, the risk-free rate is 3%, the expected return of the market is 12%, and the beta of Marpor's free cash flows is 1.20 (with or without leverage). a. Estimate Marpor's value without leverage. b. Estimate Marpor's value with the new leverage.
Q: You sold your online business to Google. Google agreed to pay you $70,000 now, $10,000 per year for…
A: Present value refers to the current value of an asset that will be available at some future date…
Q: . calculate the net present value of the following: Project A requires an initial investment of…
A: The objective of the question is to calculate the net present value (NPV) of a project. The NPV is a…
Q: help
A: “Since you have posted multiple questions, we will provide the solution only to the first question…
Q: Jasmine won a prize: the right to receive 36 payments of $100 per month with the first payment one…
A: TVM refers to the concept that considers the effect of money's interest-earning capacity, which…
Q: You have been tasked with using the FCF model to value Amara's Jewelry Company. After your initial…
A: Value of equity refers to the amount that is invested by the investors in the equity shareholders in…
Q: Given the information below for StartUp Company, compute the expected share price at the end of 2022…
A: Here,…
Q: Find the present values of these annuities due. What is the present value of $8,000 per quarter for…
A: Given:PMT = $8,000 per quarter,The annual interest rate (APR) is 4.8%,Quarterly compounding, so the…
Q: eBook Do the Math 5-2 The Benefit of a Higher APY Isabel Lopez from Lewiston, Idaho, who is 19 years…
A: The future value of the amount that has been received by Person I after ten years would be found by…
Q: aks.1
A: The objective of the question is to calculate the down payment, loan principal and monthly loan…
Q: Suppose the Sammy has a Taco Truck. He has it equipped for making and selling tacos. His net income…
A: ROCE or Return on capital employed = [Net Income / Capital Employed] x 100net Income = $15,000…
Q: Use the Dividend Discount Model to determine the expected annual growth rate of the dividend for ELO…
A: Dividend discount model is used to calculate the present or current value of the stock using the…
Q: Tanaka Industrial Systems Company is trying to decide between two different conveyor belt systems.…
A: Equivalent Annualized Cost (EAC) is the annual cost of owning and maintaining the asset over its…
Q: You are considering opening a new plant. The plant will cost $103.2 million upfront. After that, it…
A: Plant cost = $103.2 millionAnnual profits = $ 30.9 millionCost of capital = 8.60%To find: The NPV,…
Q: AMT. Inc.'s net income for this quarter is $500,000. The publicized return on assets (ROA) is 34.5 %…
A: The objective of the question is to estimate the total assets of AMT. Inc. given the net income and…
Q: Ford Motor Company's current incentives include 3.9 percent APR financing for 84 months or $1, 500…
A: Suzie Student's monthly payment in case of 3.9% APR from Ford is: $ 286.08 Suzie Student's monthly…
Q: makes deposit to a shor Inve n 1% !), what will the account balance be af
A: Simple Interest = Principal (initial deposit) * Interest Rate * TimeWhere:Principal = initial…
Q: Your retirement account has a current balance of $3, 123. What interest rate would need to be earned…
A: Here,CurrentBalance in account is $3,123Annual Contribution is $3,123Time Period is 24 yearsRequired…
Q: MAX Corp. operating income is $300,000. Interest on LT debt is $9,000. Net income is?
A: Operating Income = $300,000Interest Expense = $9,000
Q: ubject to the federal 3.8% NIIT. WH highest after-tax yield? bond paying 4.7%.
A: Treasury bond paying 4.7%Federal Tax Rate: 32%State Tax Rate: 6%After-tax yield = (1 - Federal Tax…
Q: Your father will get a gratuity of ₹ 350,000 after 10 years from now on his retirement. His employer…
A: The time value of money is a concept in finance that takes into account the effect of compounding to…
Q: Use the following table to indicate which values you should enter on your financial calculator. For…
A: The question is based on time value of money. An ordinary annuity is where a series of cash flows…
Q: During 2022 the management of Capri Limited considered the acquisition a new machine for purchase…
A: Here we used to calculate the payback period.The payback period is the time it takes for an…
Q: Use the following to answer questions 34-39: Bank A (Dollars in Millions) Assets Cash Securities…
A: Total Assets = ta = $8735 millionNet Income = ni = $114 million
Q: If you invest $2,000 today, withdraw $1,000 in 3 years, deposit $3,000 in 5 years, deposit $1,500 in…
A: Future Value is calculated by reinvesting all future cash flow till future date. The amount of final…
Q: Which coverage under the Ontario Auto Policy (OAP 1) applies to the damage to the vehicle in not at…
A: “Since you have posted multiple questions, we will provide the solution only to the first question…
Q: Hank's Barbecue just paid a dividend of $1.85 per share. The dividends are expected to grow at a 12…
A: The dividend discount model will be used here. As per the dividend discount model the value of a…
Q: A weekly business magazine offers a 1-year subscription for $24.99 and a 4-year subscription for…
A: Capital budgeting refers to the method used for evaluating the viability of the project using…
Q: calculate the net present value of the following: Project A requires an initial investment of $1,000…
A: The objective of the question is to calculate the net present value (NPV) of Project A. The NPV is a…
Q: Assume today's settlement price on a CME EUR futures contract is $1.3178/EUR. You have a short…
A: In the futures there will be late delivery of contracts after a specified period and there is market…
Q: A U.S. firm holds an asset in Great Britain and faces the following scenario: Probability Spot rate…
A: The variance of a portfolio measures the dispersion or spread of the portfolio's returns around its…
Q: A bond that settles on June 7, 2022, matures on July 1, 2042, and may be called at any time after…
A: The yield to call will be the return on the bond that an investor may earn untill the bond is called…
Q: CII, Incorporated, invests $630,000 in a project expected to earn a 12% annual rate of return. The…
A: Present Value = pv = $63,000Interest rate = r = 12%Time = t = 10
Q: Consider the following case of Cold Duck Manufacturing Inc.: Cold Duck Manufacturing Inc. has no…
A: The sustainable growth rate can be found by multiplying the retention with the return on equity…
Q: annual payments of $1,500 per year, at a disco
A: PV = PMT * [(1 - (1 + r)^(-n)) / r]Where:PV is the present value of the annuityPMT is the amount of…
Q: You are evaluating a project for The Tiff-any golf club, guaranteed to correct that nasty slice. You…
A: Operating cash flow is the cash flow from the core operations of the company after doing payments…
Q: Currently, the spot exchange rate is $1.56 per £ and the three-month forward exchange rate is $1.58…
A: The objective of the question is to determine whether the interest rate parity (IRP) is currently…
Q: Futuristic Development (FD) generated $2 million in sales last year with assets equal to $5 million.…
A: In finance, AFN stands for "Additional Funds Needed." AFN refers to the amount of financing required…
Q: Use the table for the question(s) below. Name Gannet McClatchy Media General New York Times 2423 Lee…
A: The objective of the question is to estimate the share price of a newspaper publishing firm using…
Q: It is now January 1, 2021, and you are considering the purchase of an outstanding bond that was…
A: Yield to maturity is the total return anticipated on a bond if it is held until it matures. It takes…
Q: Their annual combined income $70,000 Their annual debt payments (excluding monthly housing costs)…
A: Current ratio is measure of working capital requirements and it shows how much assets are available…
Q: Consider the year-to-date returns of Yum Brands, Raytheon, and Coca-Cola. A 1 2 Return 3 Weight B…
A: Portfolio Return = (Return1*Weight1)+(Return2*Weight2)+(Return3*Weight3)where,Return1=Return of…
Q: Wells Fargo offers a new savings product: You make the following payments over the next 5 years and…
A: The FV of an investment refers to the cumulative worth of the investment's cash flows at a future…
Q: 5) George wants to purchase a new house that costs $185, 500. The terms of the sale are 10% down…
A: Cost of house = $185,500Downpayment = 10%Loan interest rate = 5.75%Term of loan = 30 YearMonthly…
Q: Required information Section Break (8-11) [The following information applies to the questions…
A: Standard deviation could be a measurable degree that measures the scattering or spread of a dataset…
Q: You manage a risky portfolio with an expected rate of return of 12% and a standard deviation of 36%.…
A: The Sharpe ratio refers to the measure of the risk-adjusted return to ascertain the compensation…
Q: 2000. Fill out columns (4)- (7) and compute the total dollar profits from this carry trade over the…
A: The exchange rate is the amount that can be exchanged from one currency to another. It is essential…
Q: Slush Corporation has two bonds outstanding, each with a face value of $2.4 million. Bond A is…
A: Variables in the question:Face value of Bond A=$2.4 million Face value of Bond B=$2.4 million Worth…
Q: Super Apparel wants to replace an old machine with a new one. The new machine would increase annual…
A: The Accounting Rate of Return (ARR) is a financial metric used to evaluate the profitability of an…
Q: Things Get Messi Enterprises is issuing new bonds for a capital budgeting project. The bonds will…
A: Bond pricing refers to the process of determining the fair value of a bond based on various factors…
Q: An investment has the following expected cash flows: Year 2 3 Cash Flows $10,033 $20,003 30,000 The…
A: Variables in the question: Year Cash Flow ($)110033220003330000Discount…
Vijay
Step by step
Solved in 3 steps with 3 images
- Krypton Engineering expects to have net profit next year of $28.18 million and free cash flow of $22.18 million. Krypton's marginal corporate tax rate is 40%. a. If Krypton increases leverage so that its interest expense rises by $8.1 million, how will its net profit change? b. For the same increase in interest expense, how will free cash flow change?Arnell Industries has 5.5 million in permanent debt outstanding. The firm will pay interest only on this debt. Arnell's marginal tax rate is expected to be 40% for the foreseeable future. a. Suppose Arnell pays interest of 9% per year on its debt. What is its annual interest tax shield? b. What is the present value of the interest tax shield, assuming its risk is the same as the loan? c. Suppose instead the interest rate on the debt were 7%. What is the present value of the interest tax shield in this case?Grommit Engineering expects to have net income next year of $24.36 million and free cash flow of $22.17 million. Grommit's marginal corporate tax rate is 35%. a. If Grommit increases leverage so that its interest expense rises by $6.7 million, how will net income change? b. For the same increase in interest expense, how will free cash flow change? a. If Grommit increases leverage so that its interest expense rises by $6.7 million, how will net income change? Net income will fall to $ 4.36 million. (Round to two decimal places.) b. For the same increase in interest expense, how will free cash flow change? (Select the best choice below.) A. Free cash flow increases by the amount of the interest expense. B. Free cash flow decreases by the amount of the interest expense. C. Free cash flow is not affected by interest expense. D. None of the above.
- Happy Time Inc. is expected to generate the following cash flows for the next year, as shown in the table below. Happy Time now only has one outstanding debt with a face value of $110 million to be repaid in the next year. The current market value for the debt is $67 million. The tax rate is zero. If you invest in the corporate debt of Happy Time Inc. today, what is your expected percentage return on this investment? Cash flow in the next year Economy Probability Amount Boom 0.3 Normal 0.4 Recession 0.3 O 36.87% O -26.37% 64.8% O-16.63% $110 million $101 million $61 millionJohnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $270,000 if credit is extended to these new customers. Of the new accounts receivable generated, 9 percent will prove to be uncollectible. Additional collection costs will be 6 percent of sales, and production and selling costs will be 75 percent of sales. 1. Compute the incremental income before taxes. 2. What will the firm’s incremental return on sales be if these new credit customers are accepted? (Round final answer to 2 decimals) 3. If the receivable turnover ratio is 5 to 1, and no other asset buildup is needed to serve the new customers, what will Johnson Electronics’ incremental return on new average investment be? (Round only the final answer to %)Milton Industries expects free cash flows of $14 million each year. Milton's corporate tax rate is 21%, and its unlevered cost of capital is 14%. Milton also has outstanding debt of $25.57 million, and it expects to maintain this level of debt permanently. a. What is the value of Milton Industries without leverage? b. What is the value of Milton Industries with leverage? a. What is the value of Milton Industries without leverage? The value of Milton Industries without leverage is $ million. (Round to two decimal places.) b. What is the value of Milton Industries with leverage? The value of Milton Industries with leverage is $ million. (Round to two decimal places.)
- Milton Industries expects free cash flows of $19 million each year. Milton's corporate tax rate is 22 %, and its unlevered cost of capital is 13%. Milton also has outstanding debt of $73.37 million, and expects to maintain this level of debt permanently. a. What is the value of Miton Industries without leverage? b. What is the value of Milton Industries with leverage? Cam a. What is the value of Milton Industries without leverage? The value of Milton Industries without leverage is 5 million (Round to two decimal places.) b. What is the value of Milton Industries with leverage? The value of Milton Industries with leverage is $million. (Round to two decimal places)Kohwe Corporation plans to finance a new investment with leverage. Kohwe Corporation plans to borrow $49.3 million to finance the new investment. The firm will pay interest only on this loan each year, and it will maintain an outstanding balance of $49.3 million on the loan. After making the investment, Kohwe expects to earn free cash flows of $10.7 million each year. However, due to reduced sales and other financial distress costs, Kohwe's expected free cash flows will decline to $9.7 million per year. Kohwe currently has 4.6 million shares outstanding, and it has no other assets or opportunities. Assume that the appropriate discount rate for Kohwe's future free cash flows is 7.9% and Kohwe's corporate tax rate is 40%. What is Kohwe's share price today given the financial distress costs of leverage? The price per share is $23.01 per share. (Round to the nearest cent.) CHappy Time Inc. is expected to generate the following cash flows for the next year, as shown in the table below. Happy Time now only has one outstanding debt with a face value of $110 million to be repaid in the next year. The current market value for the debt is $67 million. The tax rate is zero. If the firm is financed by common equity and debt, what is the expected value of common equity next year? Cash flow in the next year Probability Amount Economy Boom 0.3 $110 million Normal 0.4 $101 million Recession 0.3 $61 million $26.8 million $24.7 million $0 -$18.3 million
- Meyer & Co. expects its EBIT to be $97,000 every year forever. The firm can borrow at 8 percent. The company currently has no debt, and its cost of equity is 13 percent. The tax rate is24 percent. What is the WACC? What are the implications of the firm’s decision to borrow? Please work on excel and show formulasSunny Manufacturing is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $220,000 if credit is extended to these new customers. Of the new accounts receivable generated, 10 percent will prove to be uncollectible. Additional collection costs will be 5 percent of sales, and production and selling costs will be 70 percent of sales. a. Compute the incremental income before taxes. $ Incremental income before taxes b. What will the firm's incremental return on sales be if these new credit customers are accepted? (Round the final answer to 2 decimal place.) Incremental return on sales % c. If the receivable turnover ratio is 4 to 1, and no other asset buildup is needed to serve the new customers, what will Sunny Manufacturing's incremental return on new average investment be? (Do round intermediate calculations. Round the final answer to the nearest whole percentage.) Incremental return on new average investment %Meyer & Co. expects its EBIT to be $115,000 every year forever. The firm can borrow at 7 percent. The company currently has no debt, and its cost of equity is 13 percent. a. If the tax rate is 24 percent, what is the value of the firm? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What will the value be if the company borrows $255,000 and uses the proceeds to repurchase shares? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)