The EBIT of a firm is $248, the tax rate is 40%, the depreciation is $66, capital expenditures are $35 and the increase in net working capital is $36. What is the free cash flow to the firm? Baltimore Company had a long-term debt of $1,000,000. To extinguish this debt the company issued $1,000,000 of fully paid shares to the lender. This transaction would have the following impact on the cash flow statement: decrease cash by $1,000,000. nil impact. This is a non-cash transaction. increase cash flow from financing activities by $1,000,000. increase cash by $1,000,000.
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- James Madison Ltd. expects a net income of 200,000. The company has 5% of 1,000,000 bonds payable. The equity capitalization rate of the company is 20%. (a) Calculate the value of the firm and average cost of capital according to the net income approach (ignoring income tax).Company Z has a total value of $ 500,000. On its balance sheet, it has a debt of $ 150,000 paid at 3%. The shareholders ask for a dividend of 10% a year. Company Z is yearly audited and pays all its due taxes. What is the capital structure for Z? What would be the risk profile of Z? How can capital structure influence the risk profile of Z?Planet Express has liabilities of $400 and assets of $1000. The average YTM on its debt is 10% and the tax rate is 20%. The company has announced $1 annual dividends in perpetuity and has a stock price of $5. What is the company’s weighted average cost of capital (WACC)? Why is the tax rate included in the WACC? How can the WACC be used to evaluate potential investments?
- Tech Corp had gross sales of $9 million and total ex- of $8.5 million. Assume that Tech wants to penses undertake a capital investment of $1 million. What is the minimum amount of bonds it would have to issue to do so? Assume that Tech pays out $300,000 in dividends. Now what is the minimum amount it would have to borrow?Here is Icknield’s market-value balance sheet (figures in $ millions): Net working capital $550 Debt $800 long term assets $2,150 Equity $1,900 value of firm $2,700 $2,700 The debt is yielding 7%, and the cost of equity is 14%. The tax rate is 21%. Investors expect this level of debt to be permanent. a. What is Icknield’s WACC? b. How would the market-value balance sheet change if Icknield retired all its debt?IXYZ Ltd., experts a net income of $150,000. The company has 10% 500,000 debentures. The equity capitalization rate of the company is 10%.g(a) Calculate the value of the firm and overall capitalization rate accordint the net income approach (ignore income tax).(b) If the debenture debt is increased to $750,000 and interest of debt inchange to 9%. What is the value of the firm and overall capitalizatiorate?
- Bolero Corporation has one long term loan (interest bearing debt) of $700,000 at an interest rate of 8%. The company has accounts payable of $300,000 (non-interest bearing) and equity of $1,000,000. It estimates that its cost of equity is 16%. Its tax rate is 35%. A. What is the company’s weighted average cost of capital on interest bearing debt and equity? B. What is Bolero Corporation’s weighted average cost of capital on all liabilities and equity (or total invested capital)?TMR Corporation announced that its cash flows from operations is $3,000,000. It also presents that the capital expenditure amounts to $800,000 and they issued new debts amounting to $1 million. The FCFE of the firm would be? Use #1. The FCFE is expected to grow by 5%. Assume that the required rate of return of the shareholders is 15%, the value of equity would be? Use #2. The market value of the firm’s preferred equity is $1 million. If the firm has 500,000 common shares outstanding, the value per share would be?TBA Corporation announced that its cash flows from operations is $5 million. It also presents that the capital expenditure amounts to $1 million and they acquired additional debt amounting to $1,500,000. The FCFE of the firm would be? Use #1. The FCFE is expected to grow by 4%. Assume that the required rate of return of the shareholders is 12%, the value of equity would be? TQC Corporation announced that its cash flows from operations is $3 million. It also presents that the capital expenditure amounts to $800,000 and they issued new debts amounting to $1,000,000. The FCFE of the firm would be? Use #3. The FCFE is expected to grow by 5%. Assume that the required rate of return of the shareholders is 15%, the value of equity would be? Use #4. The market value of the firm’s preferred equity is $1 million. If the firm has 500,000 common shares outstanding, the value per share would be? (Hint: Deduct market value of preferred equity from the value of equity).
- Calculate the weighted average cost of capital (WACC) of company ABC Inc., if: 1. The company's current capital structure consists of 35% from a long-term corporate bond, 30% from new common stock to be issued in the coming months, 20% from retained earnings and the rest is financed by a bank loan. The corporate tax rate is 35%. II. The company's cost of debt from the bond issuance is 9% and from the bank loan is 8%. III. The current stock price of common stock is €10, the current dividend (D) is €0.80 per share and dividends are expected to grow by 2% per year. New common stock flotation costs stand at 3% of the current stock price. OA Around 11% OB. Around 9% OC. Around 8% OD. Around 7% OE. None of the given answers is correcta) Table below shows the simplified balance sheet information for Jess Elton Enterprise. The debt has just been refinanced at an interest rate of 6% (short term) and 8% (long term). The expected rate of return on the company's shares is 15%. There are 7.46 million shares outstanding, and the shares are trading at $46. The tax rate is 35%. Calculate this company's weighted-average cost of capital (WACC) based on the market weighted scheme. 1,500 Short-term debt 75,600 Cash and marketable securities Accounts receivable Inventory Current assets Property, plant, and equipment Other assets Total 120,000 Accounts payable 125,000 Current liabilities 246,500 302,000 Long-term debt 89,000 Shareholders' equity 637,500 Total 62,000 137,600 208,600 637,500 246,300 b) Discuss the different funding strategies a company may follow in order to finance its cumulative working capital requirements.Alpha Corporation has average annual free cashflows to the equity holder and to the firmof P3,000,000 and P3,350,000 respectively. Assuming that the weighted average cost ofcapital and actual return of on assets is 16.75% while the market return on Alpha's debt is7%, what is the value of its equity? a. P34,358,974.36 b.P15,000,000.00 c.P17,910,447.76 d.P20,000,000.00