Ornaments, Inc., is an all-equity firm with a total market value of $652,000 and 31,700 shares of stock outstanding. Management believes the earnings before interest and taxes (EBIT) will be $93,400 if the economy is normal. If there is a recession, EBIT will be 20 percent lower, and if there is a boom, EBIT will be 30 percent higher. The tax rate is 40 percent. What is the EPS in a recession? $1.77 $2.30 $1.24 $1.41 $2.12
Q: BC Company has a capital structure of 60% debt and 40% equity. ABC's cost ebt is 4.2%. ABC computes…
A:
Q: On March 1, an investor bought a 10-unit apartment building for $360,000. The investor paid $72,000…
A: Vacancy and Collection losses amount= Potential Gross income x Vacancy and Collection…
Q: Solo Corp, is evaluating a project with the following cash flows: Year 0 1 2 3 4 5 Cash Flow…
A: Under Discounting approach:(1) First calculate the present value of the negative cash flows at time…
Q: Assignment 1: Financial Statement Analysis and Interpretation of the Results • Select two different…
A: The objective of this question is to analyze the profitability ratios of two selected companies for…
Q: What is the discount yield, bond equivalent yield, and effective annual return on a $3 million…
A: Calculation of the discount yield is as follows:Discount yield = [(Par-Price) / Par ] x (360 / time…
Q: Problem 18-4 WACC Use the following information: • Debt: $69,000,000 book value outstanding. The…
A: Weighted average cost of capital is the average cost of capital of each source of finance (debt,…
Q: Find the hedge ratio a 1-period at-the-money put option on ¥300,000. The spot exchange rate is ¥100…
A: Spot rate $1.00 =Yen 100Strike rate $1.00= Yen 100Both are same because put option is at the…
Q: Freedom Corporation acquired a fixed asset for $140,000. Its estimated life at time of purchase was…
A: Incremental present value of the tax benefits resulting from calculating depreciation using the…
Q: 5) Two firms have 0.75 difference in their beta and 5% difference in their expected return, what is…
A: Given that there is a 0.75 difference in beta and 5% difference in expected return, we can calculate…
Q: Buster's had a beginning cash balance of $2,780 for the quarter. During the quarter, the firm had…
A: First we need to use equation below to calculate short term debt paid off.Short term debt paid off =…
Q: Each of the three independent situations below describes a finance lease in which annual lease…
A: Note: Since you have posted multiple questions, we will provide the solution only to the first…
Q: If you borrow $30,000 from a bank for 7 years at an interest rate of 8.5%, how much will you owe in…
A: A loan refers to a contract between two parties where money is forwarded from one party to the other…
Q: NPV of Pigpen's project?
A: Cost = $ 13,80,000 Depreciation for each of the 10 years would be $1,38,000 ($13,80,000/10) using…
Q: Alex Moore is 43 years old and has accumulated $78,000 in his self-directed defined contribution…
A: Total contribution= 1,500+1,500=3,000Amount into risk free account = 3,000∗40%=1,200
Q: 5. Find the amount of interest earned in the following deposit: $12,699.36 at 5% compounded…
A: The concept of time value of money will be used here. As per the concept of time value of money the…
Q: The GiN Corp. is expected to pay a dividend of $3 which is expected to grow at 2% for a foreseeable…
A: The objective of the question is to calculate the weighted average cost of capital (WACC) for GiN…
Q: You find the following corporate bond quotes. To calculate the number of years until maturity,…
A: A bond's interest payment made in relation to its face value, or par, is known as the coupon rate.…
Q: Consider a two-period binomial tree model with u = 1.05 and d = 0.90. Suppose the current price of…
A: The value of options with fluctuating values over time is determined using the binomial option…
Q: Given the returns and probabilities for the three possible states listed below, calculate the…
A: The covariance between the returns of stocks refers to the effect of the return of one stock on the…
Q: Based upon the simple interest rate method of a fixed interest rate installment loan or mortgage,…
A: In a fixed-interest rate installment loan or mortgage with simple interest, each monthly payment…
Q: A company would like to borrow money at the stated annual interest rate (or APR) of 15%, compounded…
A: Effective interest rate is the interest rate after considering impact of compounding on the interest…
Q: Consider the following portfolio of four bonds: Bond Years to K L Maturity 3 6 10 15 Annual Coupon…
A: Modified duration is a formula that expresses the measurable change in the value of a security in…
Q: Jon is to receive 10 annual payments where the first payment of 10,000 will be paid in one ye…
A: Pv of cash flow = Cash flow * PV FACTOR.
Q: rew can design a risky portfolio based on two risky assets, Origami and Gamiori. Origami has an…
A: In portfolio optimization, a portfolio with minimum variance is considered to be an optimal…
Q: A remotely situated fuel cell has an installed cost of $1,900 and will reduce existing surveillance…
A: Installed cost=$1900Annual savings=$500Period=n=15 yearsMARR=r=8%Salvage value=$350
Q: Consider the following information regarding the performance of a money manager in a recent month.…
A: “Since you have posted a question with multiple sub parts, we will provide the solution only to the…
Q: A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a…
A: The minimum variance portfolio is the portfolio consisting of risky assets where the investor…
Q: Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in…
A: Exchange rate risk, also known as currency risk, refers to the potential financial loss or gain that…
Q: An analyst has the following projected free cash flows for an investment: Year 1: $125,050; Year 2:…
A: Introduction:We will find the IRR of the cash flow to determine the discount rate used in…
Q: You are considering two investment options. In option A, you have to invest RM5000 now and RM1000…
A: Payback period is the time it takes to recover its investments and present worth is the value of the…
Q: QUESTIONS: 1) Assuming that the risk-free rate of return is currently 3,2%, the market risk premium…
A: Since you have posted multiple questions, we will provide the solution only to the first question as…
Q: ider a simple, homogeneous monocentric city with a circular shape. If the location rent premium at…
A: The rent factor is maximum at the centre in a homogeneous mono centric circular city arrangement due…
Q: , what is the present value of its growth opportunities?
A: Earnings per share, E = $12Plowback Ratio, b = 60%Dividend Payout Ratio = 100 – Plowback Ratio = 100…
Q: Scenario 2: Crotekch Power Sdn. Bhd. installed a diesel-electric unit costing RM50,000 at a remote…
A: Capital budgeting is a way to evaluate profitability of the new projects or investment by using…
Q: Suppose you have $200,000 cash today and you can invest it to become worth $2,000,000 in 18 years.…
A: Present value refers to the method of time, the value of money which is the value today of an asset…
Q: Assume you invest in the European Equity Market and have a 15% return (quoted in Euros). a) If…
A: a)European Equity Market and have a 15% return If the euro appreciated by 10% against the dollar the…
Q: Fox Hollow Franks is looking at a new system with an installed cost of $540,000. This equipment is…
A: The NPV of a project refers to the measure of the profitability of the project calculated by…
Q: Dani-Corporation has 7 million shares of common stock outstanding. The current share price is $83,…
A: The weighted average cost of capital is the rate that a company is expected to pay on average to all…
Q: LEI has the following investment opportunities that are average-risk projects for the firm: Project…
A: Rate of return:The “rate of return” is a crucial financial metric that represents the gain or loss…
Q: 6. The firm is currently an all-equity firm with assets worth $120 million and 10 million shares…
A: - Current Assets Value: $120 million- Current Shares Outstanding: 10 million- New Debt: $60 million-…
Q: Assignment 1: Financial Statement Analysis and Interpretation of the Results • Select two different…
A: The objective of this question is to conduct a financial analysis of two different corporations from…
Q: TRUE OR FALSE: Assuming an efficient market, two financial securities cannot have the same risk and…
A: The efficient market hypothesis states that information is quickly and accurately reflected in asset…
Q: You are International Business Manager at a UK based company. Your company has identified USA and…
A: As you have posted the question with multi parts, we will solve the first three parts for…
Q: Aiden starts a retirement fund 10 years before retirement. He pays $100 per month into the annuity…
A: Future value refers to the future value of all future cash flows. It can be determined by…
Q: Task 17 You have to pay $12,000 a year in school fees at the end of each of the next six years. If…
A: Present value of ordinary annuity is calculated as:PV = CF * (1 - (1+r)^-t) / rSo, hereCF = $12,000r…
Q: If a country devalues its currency, it is implementing an implicit___ policy on exporters and an…
A: The objective of the question is to understand the implicit policies that a country is implementing…
Q: of bonds at date of issue. (Round present value factor calculations to 5 decimal places, eg.…
A: Zero coupon bonds are a type of bond that does not make coupon payments. The coupon rate is zero…
Q: What's the present value of $2,500 discounted back 5 years if the appropriate interest rate is 4.5%,…
A: Present value is a concept used in finance to represent the current worth of a sum of money or a…
Q: f four stocks A, B, C and D have coefficients of variation of 1.80, 2.00, 1.55 and 1.35,…
A: Coefficient of Variation(CV) measures the risk per unit of return.Coefficient of Variation(CV) =…
Q: A bond that matures in 7 years sells for $1020. The bond has a face value of $1000 and a yield to…
A: A financial indicator called current yield compares an investment's yearly income to its market…
Ornaments, Inc., is an all-equity firm with a total market value of $652,000 and 31,700 shares of stock outstanding. Management believes the earnings before interest and taxes (EBIT) will be $93,400 if the economy is normal. If there is a recession, EBIT will be 20 percent lower, and if there is a boom, EBIT will be 30 percent higher. The tax rate is 40 percent. What is the EPS in a recession?
$1.77
$2.30
$1.24
$1.41
$2.12
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
- Ornaments, Incorporated, is an all-equity firm with a total market value of $542,000 and 20,700 shares of stock outstanding. Management believes the earnings before interest and taxes (EBIT) will be $76,400 if the economy is normal. If there is a recession, EBIT will be 20 percent lower, and if there is a boom, EBIT will be 30 percent higher. The tax rate is 21 percent. What is the EPS in a recession?A recession is anticipated to lower GDP by 4.0%. Orange Inc. believes that its sales will drop 2.0% under these conditions. Orange currently has a Return on Assets of 8% and its annual Fixed Costs are 20% of its assets. Orange is completely financed by equity. (a) Discuss if Orange is a cyclical company. (b) Calculate the effect of the recession on Orange’s stock return. (c) How would your results be different if Orange were partly debt-financed?Your company doesn't face any taxes and has $755 million in assets, currently financed entirely with equity. Equity is worth $50.50 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Recession Average Boom Probability of State .20 .60 .20 Expect EBIT in State $105 million $180 million $240 million The firm is considering switching to a 20-percent debt capital structure, and has determined that they would have to pay a 10 percent yield on perpetual debt in either event. What will be the standard deviation in EPS if they switch to the proposed capital structure? (Round your intermediate calculations and final answer to 2 decimal places except calculation of number of shares which should be rounded to nearest whole number.)
- Fujita, Incorporated, has no debt outstanding and a total market value of $222,000. Earnings before interest and taxes, EBIT, are projected to be $18,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 25 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $60,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,400 shares outstanding. Ignore taxes for questions (a) and (b). Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant. a-1. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued, assuming no taxes. Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a-2. Calculate the percentage changes in ROE for economic expansion or recession, assuming no taxes.…Fujita, Incorporated, has no debt outstanding and a total market value of $222,000. Earnings before interest and taxes, EBIT, are projected to be $18,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 25 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $60,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,400 shares outstanding. The company has a tax rate of 21 percent, a market-to-book ratio of 1.0, and the stock price remains constant. a-1. Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession. Note: A negative answer should be indicated by a minus sign. Do…Fujita, Incorporated, has no debt outstanding and a total market value of $222,000. Earnings before interest and taxes, EBIT, are projected to be $18,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 25 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $60,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,400 shares outstanding. Ignore taxes for questions (a) and (b). Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant. a-1. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued, assuming no taxes. Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a-2. Calculate the percentage changes in ROE for economic expansion or recession, assuming no taxes.…
- Fujita, Incorporated, has no debt outstanding and a total market value of $222,000. Earnings before interest and taxes, EBIT, are projected to be $18,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 25 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $60,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,400 shares outstanding. Ignore taxes for this problem. a-1. Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession. Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded…Ghost, Inc., has no debt outstanding and a total market value of $140,000. Earnings before interest and taxes, EBIT, are projected to be $32,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 12 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $115,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,000 shares outstanding. Ignore taxes for this problem. a-1. Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2…Fujita, Incorporated, has no debt outstanding and a total market value of $222,000. Earnings before interest and taxes, EBIT, are projected to be $18,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 25 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $60,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,400 shares outstanding. Ignore taxes for this problem. Assume the stock price is constant under all scenarios.
- Minion, Inc., has no debt outstanding and a total market value of $240,000. Earnings before interest and taxes, EBIT, are projected to be $28,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 10 percent higher. If there is a recession, then EBIT will be 25 percent lower. The company is considering a $48,000 debt issue with an interest rate of 4 percent. The proceeds will be used to repurchase shares of stock. There are currently 20,000 shares outstanding. Ignore taxes for this problem. a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)b-1. Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization. (Do not round intermediate calculations and…Fowler, Inc., has no debt outstanding and a total market value of $150,000. Earnings before interest and taxes, EBIT, are projected to be $28,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 25 percent lower. The firm is considering a debt issue of $60,000 with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 10,000 shares outstanding. The firm has a tax rate 25 percent. Assume the stock price is constant under all scenarios. a-1. Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate…Minion, Inc., has no debt outstanding and a total market value of $240,000. Earnings before interest and taxes, EBIT, are projected to be $28,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 10 percent higher. If there is a recession, then EBIT will be 25 percent lower. The company is considering a $48,000 debt issue with an interest rate of 4 percent. The proceeds will be used to repurchase shares of stock. There are currently 20,000 shares outstanding. Ignore taxes for this problem. a-1. Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2…