Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 2, Problem 17QP
a)
Summary Introduction
To determine: The market value of shareholders’ equity when the market value of assets is $8,700.
Introduction:
Market value refers to the value that the asset will fetch if it is sold in the open market. The market value of shareholders’ equity is the value at which the owner can buy and sell the equity share of the company. It cannot be negative because it is practically impossible to have a negative net worth. Moreover, the law states that the net worth of an individual or a corporation cannot be negative.
b)
Summary Introduction
To determine: The market value of shareholders’ equity when the market value of assets is $5,900.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Problem 16
Lozano Company sells a portfolio of short-term accounts receivable with a carrying amount of P900,000 for P1,000,000 and promises to pay up to P30,000 to compensate the buyer if and when any defaults occur. Lozano Company neither transfers nor retains substantially all the risks and rewards of ownership of the transferred asset, and retains control of the transferred asset.
How much should be recognized as continuing involvement in the receivables?
4. Calculating OCF [LO1] Consider the following income
statement:
Sales
$747,300
582,600
Depreciation 89,300
Costs
EBIT
Taxes (22%)
?
Net income
?
Fill in the missing numbers and then calculate the OCF.
What is the depreciation tax shield?
LO 3 E3.14 Identification of Variable Interest Entity and Primary Beneficiary Softek Corporation forms
a separate legal entity, Startek, to develop new technology. The entity is funded by $4,000,000 in outside
equity and $26,000,000 in debt. Softek guarantees Startek's debt. The entity is expected to generate the
following cash flows at the end of one year:
Cash Flow
$11,000,000
33,000,000
55,000,000
A discount rate of 10 percent is appropriate.
Required
b.
Probability
0.40
0.20
0.40
a. Assume qualitative analysis of Startek's VIE status is inconclusive. Quantitatively analyze whether
Startek is a variable interest entity.
Assume Startek is a variable interest entity. Identify the factors that determine whether Softek is the
primary beneficiary that must consolidate Startek.
Chapter 2 Solutions
Fundamentals of Corporate Finance
Ch. 2.1 - Prob. 2.1ACQCh. 2.1 - What is liquidity? Why is it important?Ch. 2.1 - What do we mean by financial leverage?Ch. 2.1 - Explain the difference between accounting value...Ch. 2.2 - What is the income statement equation?Ch. 2.2 - Prob. 2.2BCQCh. 2.2 - Why is accounting income not the same as cash...Ch. 2.3 - What is the difference between a marginal and an...Ch. 2.3 - Do the wealthiest corporations receive a tax break...Ch. 2.4 - Prob. 2.4ACQ
Ch. 2.4 - Prob. 2.4BCQCh. 2.4 - Why is interest paid not a component of operating...Ch. 2 - What types of accounts are the most liquid?Ch. 2 - What is an example of a noncash expense?Ch. 2 - The marginal tax rate is the tax rate which...Ch. 2 - Prob. 2.4CTFCh. 2 - Prob. 1CRCTCh. 2 - Accounting and Cash flows [LO2] Why might the...Ch. 2 - Prob. 3CRCTCh. 2 - Operating Cash Flow [LO2] In comparing accounting...Ch. 2 - Prob. 5CRCTCh. 2 - Cash Flow from Assets [LO4] Suppose a companys...Ch. 2 - Prob. 7CRCTCh. 2 - Net Working Capital and Capital Spending [LO4]...Ch. 2 - Prob. 9CRCTCh. 2 - Prob. 10CRCTCh. 2 - Prob. 11CRCTCh. 2 - Earnings Management [LO2] Companies often try to...Ch. 2 - Building a Balance Sheet [LO1] KCCO, Inc., has...Ch. 2 - Building an Income Statement [LO1] Billys...Ch. 2 - Dividends and Retained Earnings [LO1] Suppose the...Ch. 2 - Prob. 4QPCh. 2 - Calculating Taxes [LO3] The Dyrdek Co. had 267,000...Ch. 2 - Prob. 6QPCh. 2 - Calculating OCF [LO4] Ridiculousness, Inc., has...Ch. 2 - Calculating Net Capital Spending [LO4] Bowyer...Ch. 2 - Calculating Additions to NWC [LO4] The 2014...Ch. 2 - Cash Flow to Creditors [LO4] The 2014 balance...Ch. 2 - Cash Flow to Stockholders [LO4] The 2014 balance...Ch. 2 - Prob. 12QPCh. 2 - Market Values and Book Values [LO1] Klingon...Ch. 2 - Prob. 14QPCh. 2 - Using Income Statements [LO1] Given the following...Ch. 2 - Preparing a Balance Sheet [LO1] Prepare a 2015...Ch. 2 - Prob. 17QPCh. 2 - Prob. 18QPCh. 2 - Net Income and OCF [LO2] During 2014, Raines...Ch. 2 - Prob. 20QPCh. 2 - Prob. 21QPCh. 2 - Calculating Cash Flows [LO4] Consider the...Ch. 2 - Net Fixed Assets and Depreciation [LO4] On the...Ch. 2 - Prob. 24QPCh. 2 - Use the following information for Taco Swell,...Ch. 2 - Use the following information for Taco Swell,...Ch. 2 - Prob. 1MCh. 2 - Prob. 2M
Knowledge Booster
Similar questions
- QUESTION 2 Awen Ltd is a manufacturer of machine tools and is at present contemplating an issue of GH¢2,000,000 10% debenture stock (2020) in order to assist the remodelling of its present production facilities. Some shareholders are reluctant to approve additional long-term debt due to the fact that the machine tools industry is subject to wide-ranging fluctuations in sales and profits. A group of shareholders have approached you and asked you to comment on the performance of Awen Ltd as compared with industrial averages and to make recommendations as to whether they should approve the proposed additional long- term debt. Abbreviated financial statements and typical ratios for firms in the machine tools industry are as follows: Awen Ltd Statement of Comprehensive Income for the year ended 31/12 2004 GH¢000 2005 GH¢000 23,500 16,000 7,500 (2,000) (3,000) Sales 20,500 14,000 6,500 (1,900) (2,600) Cost of Sales Gross profit Selling expenses Administrative expenses Operating profit…arrow_forward(Appendix 14.1)Pamlico Company has a 500,000, 15%, 3-year note dated January 1, 2019, payable to Forest National Bank. On December 31, 2020, the bank agreed to settle the note and unpaid interest of 75,000 for 50,000 cash and marketable securities having a current market value of 375,000. Pamlicos acquisition cost of the securities is 385,000. Ignoring income taxes, what amount should Pamlico report as a gain from the debt restructuring on its 2020 income statement? a. 65,000 b. 75,000 c. 140,000 d. 150,000arrow_forward26 - Current Ratio of entity X: 4; Short Term Debts: If 200,000 TL, how many TL is the Net Working Capital? a) 400.000 TL B) 300.000 TL NS) 700.000 TL D) 500.000 TL TO) 600.000 TLarrow_forward
- Q1) A. The company manager targets to increase the current ratio in the year (2021) by 30% out of the previous year (2020), this requiring to increase the amount of the total current asset. To what level can the manager increase the total current asset to achieve this target (30%) at (2021)? (Suppose the other things are fixe) B. The manager put a plan to increase the Time interest Earns (TIE) in the (2021) by (17%) out of the previous year (2020) to increase sales. How much will this plan to add amount to the accounts receivable (Suppose the other things are fixe) Data of 2020 Total Asset Turnover 2.5 Times Net Fixed Asset 600 (OMR) Total Liabilities 500 (OMR) Sales 2000 (OMR) Quick Ratio 1.5 Times Accounts Receivable 150 ( OMR) Long-term Liabilities 200 (OMR)arrow_forwardOffsetting 5. Entity A has an account receivable of P200,000 from Entity B. In addition, Entity A also has an account payable of P160,000 to Entity B. The account receivable is due in 30 days while the account payable is due in 90 days. Entity A intends to settle first the account receivable. If Entity A has a legal right of set- off, how much account receivable will be shown in its statement of financial position? c. 160,000 d. a or b a. 200,000 b. 40,000arrow_forward6 True or False 1. For 2022, a net operating loss can be carried back three years or carried forward five years. Answer: 2. Commuting to and from your primary job location is not a deductible expense. Answer: 3.When applying the limitations of the passive activity rules, a taxpayerʹs AGI is classified into active income, portfolio income and passive income. For this purpose, portfolio income includes dividends, interest, annuities, and royalties.arrow_forward
- 7. What is the amount of revaluation surplus on December 31, 2021? A. 600,000 B. 700,000 C. 800,000 D. 0 E. None of themarrow_forwardProblem 12-3 (Algo) Cash flow [LO12-2] Assume a firm has earnings before depreciation and taxes of $610,000 and no depreciation. It is in a 30 percent tax bracket. a. Compute its cash flow. Cash flow b. Assume it has $610,000 in depreciation. Recompute its cash flow. Cash flow c. How large a cash flow benefit did the depreciation provide? Benefit in cash flowarrow_forward2. A firm currently depreciates €100 per year on its fixed assets, and will continue to do so forever. Given a corporate tax rate of 25% and a discount rate of 5%, what is the value of all future depreciation tax shields? a. € 25 b. € 500 c. € 1,500arrow_forward
- [6] The amount to be paid fully secured creditor is: 32,000 35,000 30,000 20,000arrow_forwardIf the fair value of S Co. assets equal to $1,000,000. What is the estimation of goodwill if excess earnings are expected to last indefinitely, but P Co. demands a higher rate of return of 20% because of the risk involved? * $300,000 $290,000 $310,000 None of the answers Page 4 of 6 Next Clear formarrow_forwardProblem 8. What is the equivalent worth in year 5 of the following series of income and disbursements, if the interest rate is 10% per year? Year Income, S 0 0 1-5 6000 6-8 6000 9-14 8000 Answer: Equation: CFD: Expense, S 9000 6000 3000 5000arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningIndividual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Individual Income Taxes
Accounting
ISBN:9780357109731
Author:Hoffman
Publisher:CENGAGE LEARNING - CONSIGNMENT