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- WACC AND OPTIMAL CAPITAL BUDGET Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project Cost Expected Kate of Return 1 2,000 16.00% 2 3,000 15.00 3 5,000 13.75 4 2,000 12.30 The company estimates that it can issue debt at a rate of rd = 10%, and its tax rate is 30%. It can issue preferred stock that pays a constant dividend of 5.00 per year at 50.00 per share. Also, its common stock currently sells for 38.00 per share; the next expected dividend, D1, is 4.25, and the dividend is expected to grow at a constant rate of 5% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock. a. What is the cost of each of the capital components? b. What is Adamson's WACC? c. Only projects with expected returns that exceed WACC will be accepted. Which projects should Adamson accept?WACC AND OPTIMAL CAPITAL BUDGET Adams Corporation is considering four average-risk protects with the following costs and rates of return: Project Cost Expected Rate of Return 1 2,000 16.00% 2 3,000 15.00 3 5,000 13.75 4 2,000 12.50 The company estimates that it can Issue debt at a rate of rd = 10%, and its tax rate is 30%. It can issue preferred stock that pays a constant dividend of 500 per year at 4900 per share. Also, its common stock currently sells for 36.00 per share; the next expected dividend, D1 is 3.50; and the dividend is expected to grow at a constant rate of 6% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock. a. What is the cost of each of the capital components? b. What is Adams WACC? c. Only projects with expected returns that exceed WACC will be accepted. Which projects should Adams accept?PROBLEM 2. Outlast Company's projected profit for the coming year follows: Per Unit Total P200,000 (120,000) 80,000 (64,000) P 16,000 Sales Less: Variable costs P20 (12) P 8 Contribution margin Less Fixed expenses Income 4. Suppose Outlast would like to earn operating income equ to 20 percent of sales revenue. How many units must be sold for this goal to be realized? 5. For the projected level of sales, compute the margin of safety.
- QUESTION 9 A company's projected capital budget is $750,000, its target capital structure is 40% debt and 60% equity, and its forecasted net income is $650,000. If the company follows a residual dividend policy, what total dividends, if any, will it pay out and what is the payout ratio? O 100,000; 18.18% O 250,000; 35.71% O 350,000; 43.75% O 200,000; 30.77% O 140,000; 21.54% LECTION 10 dofi3. The management of Lambda Corporation has received the following forecast for the next year. Sales revenue $600,000Fixed costs $275,000Variable costs 270,000Total costs 545,000Net income $ 55,000 Capacity is a sales volume of $800,000.a. Computei. the contribution margin ii.the contribution rate. b. Compute the break-even pointi. in dollars; ii. as a percent of capacity. c. Determine the break-even volume in dollars if fixed costs are increased by $40,000, while variable costs are held to 40% of sales.The budget of a company for next period shows that it would breakeven at a sales value of GHC800000 with fixed cost of GH¢320000. What sales value should the company target to derive an after-tax profit of GH¢200000 assuming a tax rate 20% in the next period? OA. GHC2000000 O B. GHC1525000 OC. GHC1425000 OD. GHC1552000
- Problem B Summer Co. already identified the amount of additional financing needed at P2,525,000. The net income of the Summer Co. is reported at P2,000,000. The company retains 60% of the income and declares the rest as dividends. Determine the projected capital budget of the company.OPTIMAL CAPITAL BUDGET Hampton Manufacturing estimates that its WACC is 12.5%. The company is considering the following 7 investment projects: Project Size IRRA $ 750,000 14.0%B 1,250,000 13.5C 1,250,000 13.2D 1,250,000 13.0E 750,000 12.7F 750,000 12.3G 750,000 12.2a. Assume that each of these projects is independent and that each is just as risky as the firm’s existing assets. Which set of projects should be accepted, and what is the firm’s optimal capital budget? b. Now assume that Projects C and D are mutually exclusive. Project D has an NPV of $400,000, whereas Project C has an NPV of $350,000. Which set of projects should be accepted, and what is the firm’s optimal capital budget? c. Ignore part b and assume that each of the projects is independent but that management decides to incorporate project risk differentials. Management judges Projects B, C, D, and E to have average risk, Project A to have high risk, and Projects F…Golden Goodness (GG) has an investment center that had the following data: Operating Income $28,000 Sales $350,000 Invested assets $175,000 PMB has set a minimum acceptable rate of return at 14%. Using the information, answer the following questions. You must include what type of number it is (%, $, etc.) Part A: What is the residual income? Part B: Show calcualtions on how you got answer
- Return on Investment and Residual IncomeJohnson Company has two sources of funds: long-term debt and equity capital. Johnson Company has profit centers in the following locations with the following net incomes and total assets: Net Income Assets Las Vegas $1,160,000 $4,000,000 Dallas 1,400,000 8,000,000 Tampa 2,240,000 12,000,000 a. Calculate ROI for each profit center and rank them from highest to lowest based on ROI. Round ROI to the nearest whole percentage. ROI Rank Las Vegas Answer Answer Dallas Answer Answer Tampa Answer Answer b. Calculate residual income for each profit center based on a desired ROI of 5% and rank them from highest to lowest based on residual income. ROI Rank Las Vegas Answer Answer Dallas Answer Answer Tampa Answer AnswerQuestion 3: Mirbat Company's financial information is given in the table below. Year 2020 2021 Sales (OMR) Fixed Costs 445000 500000 105000 150000 Variable Costs 245000 280000 You are required to calculate the following values for each year. The years are independent of each other. a) Margin of safety at a profit of OMR 50000 b) Profit when sales are OMR. 300000.3.1 REQUIRED Calculate the following from the information given below: 3.1.1 Break-even quantity. 3.1.2 Break-even value using the marginal income 3.1.3 Margin of safety 3.1.4 Total Marginal Income and Net Profit/Loss if the sales price is reduced to R90 per unit.INFORMATION Dynamo Ltd manufactures calculators. The following information was extracted from the budget for the year ended 31 December 2023: Sales volume 20 000 units Selling price per unit R100 Variable manufacturing cost per unit R50 Variable marketing cost per unit 10% of the unit selling price Fixed manufacturing cost R400 000 Fixed administration and marketing costs R200 000
