The Tapley Company is trying to determine an acceptable growth rate in sales. While the firm wants to expand, it does not want to use any external funds to supportsuch expansion due to the particularly high interest rates in the market now. Having gathered the following data for the firm, what is the maximum growth rate it cansustain without requiring additional funds?
Given the following information, what is the standard deviation of the returns on a portfolio that is invested 40 percent in stock A, 35 percent in stock B, andthe remainder in stock C?State of Economy Prob. of State of Economy Rate of Return is state occursNormal .65 Stock A-14.3% Stock B- 16.7% Stock C- 18.2%Recession .35 -9.8% 5.4% -26.9%Seen 8 months ago sla Bethany 1 answers
During a normal economy, the common stock of Douglass &Frank is expected to return 12.5 percent. During a recession, the expected return is -5 percent and duringa boom, the expected return is 18 percent. The probability of a normal economy is 65 percent while the probability of a recession is 25 percent and the probability ofa boom is 10 percent. What is the standard deviation of these expected returns?
A. 7.49 percent
B. 8.06 percent
C. 8.68 percent
D. 10.33 percent
E. 11.47 percent
A conservative financing plan involves
A. heavy reliance on debt
B. heavy reliance on equity
C. high degree of financial leverage
D. high degree of combined leverage
This question is making my brain hurt, it seems straight foward, but I am still rather inexperienced with basic finance. I have looked through my text book and slides. I understand how the weight of debt + weight of perferred stock + weighted equity = WACC, but I cannot link this with conservative finance planning. I found a definition for financial leverage in my text book, so I am inclided to answer C. I don't have any more evidence to support my answer. HELP PLEASE....
Li Retailing reported the following items for the current year: Sales=$2,000,000; Cost of Goods Sold=$1,2000,000; Depreciation Expense=$140,000; AdministrativeExpense=$170,000; Interest Expense=$40,000; Marketing Expenses=$60,000; and Taxes=$20,000. Li's gross profit is equal to:
Common stock value-Variable Growth-Newman Manufacturing is Considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $3.86per share and paid cash dividends of $2.16 per share (Do = $2.16) Grips earnings and dividends are expected to grow at 40% per year for the next 3 yrs. after whichthey are expected to grow 9% per year till infinity. What is the maximum price per share that Newman should pay for Grips if it had a required return of 12% oninvestments with risk characteristics similar to those of Grips. Round answer to the nearest cent.Seen 8 months ago Ava Linda 0 answers
I need help double checking my homework please help if you can. Please show how you got the answer, I want to make sure I am doing the steps correctly as well.
Suppose you buy a 7 percent coupon, 20-year bond today when it’s first issued. If interest rates suddenly rise to 15%, what happens to the value of your bond? Why?
Select any actions that increase the cash account. Select all that apply: (Points : 3)
payment is received on a receivable
An interest payment on a notes payable is made
A payment due is received from a client
An old machine is sold for cash
2. (TCO 2) Which one of the following will decrease the operating cycle? (Points : 3)
increasing the days' sales in inventory
decreasing the accounts payable period
decreasing the cash cycle
increasing the accounts receivable turnover rate
decreasing the accounts payable turnover rate
3. (TCO 2) Assume Green Leaf Nursery anticipated sales of $500 in this quarter. Accounts receivable at the beginning of the quarter was $300. Assuming a collectionperiod of 30 days, which is the approximate cash collections amount for the quarter? (Points : 3)
None of the above
4. (TCO 2) Which one of the following practices will reduce a firm's collection float? (Points : 3)
utilizing zero-balance accounts
depositing checks weekly rather than daily
requiring all customers pay by check rather than with cash
installing a lockbox system
paying all bills five days sooner
5. (TCO 2) Which of the following statements is true? Select all that apply: (Points : 3)
The optimal credit policy minimizes the total cost of granting credit.
Firms should avoid offering credit at all cost.
An increase in a firm's average collection period generally indicates that an increased number of customers are taking advantage of the cash discount.
The costs of the credit application process and the costs expended in the collection process are carrying costs of granting credit.
Capacity refers to the ability of a firm to meet its credit obligations out its operating cash flows.
The optimal credit policy is the policy that produces the largest amount of sales for a firm.
6. (TCO 2) You place an order for 100 units of inventory Part A at a unit price of $522. The supplier offers terms of 3/25, net 40. How much should you remit if youtake the discount? (Points : 3)
None of the above
7. (TCO 2) Auto Parts sells 1,200 electric parts per week and then reorders another 1,200 parts. If the relevant carrying cost per electric part is $4 and the fixedorder cost is $750, what is the total carrying cost and the restocking cost, respectively? (Points : 3)
$2,400 and $39,900
$3,200 and $33,800
$2,400 and $39,000
$3,400 and $30,000
None of the above
8. (TCO 2) Company ABC has expected sales of 12,000 units this year, an ordering cost of $6 per order and carrying costs of $1.60 per unit. What is the EOQ? (Points :3)
None of the above
9. (TCO 2) The _________ is the time it takes to acquire and sell inventory. (Points : 3)
accounts receivable period
accounts payable period
10. (TCO 2) List three examples of short-term investments. (Points : 3)
The yield to maturity for 15 year bonds is as follows for four different bond rating categories: Aaa 9.4% Aa1 9.6% Aa2 10.0% Aa3 10.2% Question: The bonds of Corp X were rated as Aa1 and issued at par a few weeks agao. The bonds have just downgraded to Aa2. Determine the new price of the bonds, assuming a 15 year maturity and semmiannual interest payments. As a first step, use the catagories above as a guide to appropiate interest rates for bonds with different ratings. I have two other questions that I need help in. If you help me with this question i will pay for the other two..Seen 12 months ago Gelbero Wilson 0 answers
The assets of Dallas &Associates consist entirely of current assets and net plant and equipment. The firm has total assets of $2.6 million and net plant andequipment equals $2.1 million. It has notes payable of $145,000, long-term debt of $752,000, and total common equity of $1.45 million. The firm does have accountspayable and accruals on its balance sheet. The firm only finances with debt and common equity, so it has no preferred stock on its balance sheet.
What is the amount of total liabilities and equity that appears on the firm's balancesheet? $ ________
What is the balance of current assets on the firm's balance sheet? $ ________
What is the balance of current liabilities on the firm's balance sheet? $ ________
What is the amount of accounts payable and accruals on its balance sheet? [Hint: Consider this as a single line item on the firm's balance sheet.] $ ________
What is the firm's net working capital? $ ________
What is the firm's net operating working capital? $ ________
What is the monetary difference between your answers to part e and f? $ ________
Calculate the required rate of return for Manning Enterprises assuming that investors expect a 3.5% rate of inflation in the future. The real risk- free rate is 2.5%,and the market risk premium is 6.5%. Manning has a beta of 1.7, and its realized rate of return has averaged 13.5% over the past 5 years.Seen 7 months ago Nathaniel bag 0 answers
****I ONLY NEED THE SECOND PART OF THIS QUESTION ANSWERED (PART B)****A. Abbreviated financial Statements for Archimedes Levers are shown in the following table. If sales increase by 10% in 2011 and all other items,including debt, increase correspondingly, what must be the balancing item? What will be its value?B. What is the maximum possible growth rate for Archimedes if the payout ratio is set at 50% and (a) no external debt or equity is to beissued? (b) the firm maintains a fixed debt ratio but issues no equity?INCOME STATEMENTSales$4000Costs, including interest3,500Net income$500BALANCE SHEET, YEAR END20102009 20102009Assets$3200$2700Debt$1200$1033---Equity2,0001,667Total$3200$2700Total$3200$2700Seen 10 months ago Emily Elizabeth 0 answers
You want to buy a new car ,but you can make initial payment of only $2000 and can afford monthly payments of at most $400:
a)if the APR on auto loans is 12% and you finance the purchase over 48 months, what is the maximum price you can pay for that car?
b)how much can you afford if you finance the purchase over 60 months?
Here is the question need help please
You have just joined the investment banking firm of Knot, Wirthem, et al. They have offered you two different salary arrangements. You can have $50,000 per year forthe next 3 years or $25,000 per year for the next 3 years, along with a $50,000 signing bounus today. If the market interest rate is 16%, which salary arrangement doyou prefer? (Base your answer on present value).
Need help with this question need to show work please.
A firm’s new president wants to strengthen the company’s financial position. Which of the following actions would make it financially stronger?
a. Increase accounts receivable while holding sales constant.
b. Increase EBIT while holding sales constant.
c. Increase accounts payable while holding sales constant.
d. Increase notes payable while holding sales constant.
e. Increase inventories while holding sales constant.
Table 18.11 gives abbreviated balance sheets and income statements for Estee Lauder Companies. Calculate the following ratios:Return on assetsOperating profit marginSales-to-assets ratioInventory turnoverDebt-equity ratioCurrent ratioQuick ratioEnd of YearStart of YearBALANCE SHEETAssetsCurrent assets:Cash and marketable securities402254Accounts receivable1039861Inventories987856Other current assets360259Total current assets27872239Fixed assets:Tangible fixed assetsProperty, plant, and equipment2,3942,113Less accumulated depreciation1,3511,232Net tangible fixed assets1,043881Long-term investments2422Other long-term assets1,157984Total Assets5,0114,126Liabilities and shareholder’s equityCurrent liabilitiesDebt due for repayment11960Accounts payable1,5811,440Total current liabilities1,6991,501Long-term debt1,0781,028Other long-term liabilities581398Total Liabilities3,3582,927Total shareholder’s equity1,6531,199Total Liabilities and shareholders equity5,0114,126INCOME STATEMENTNet sales7,911Cost of goods sold1,997Selling, general, and administrative expenses4,852Depreciation251Earnings before interest &taxes (EBIT)811Interest expense67Taxable income744Tax260Minority interest10Net income474Dividends107Addition to retained earnings367Seen 12 months ago Oscar Rhys 0 answers
A stock has annual returns of 6 percent, 14 percent, -3 percent, and 2 percent for the past four years. The arithmetic average of these returns is _____ percent whilethe geometric average return for the period is _____ percent.
From the ?nancial page, you ?nd the following information. HSBC is trading at $115.
An European call option on HSBC that has an exercise price of $130 and expires
one year from now is selling at $9. An European put option on the same stock that
has the same exercise price and expiration date is selling at $18. The riskless rate
of interest rate is 6% per year. Show how you can make riskless pro?ts, if any, from
Wren Manufacturing is in the process of analyzing its
investment decision-making procedures. The two projects evaluated by the firm
during the past month were projects 263 and 264. The basic variables surrounding
each project analysis and the resulting decision actions are summarized in the following table.
Basic Variables Project 263 Project 264
Cost $64,000 $58,000
Life 15 years 15 years
Expected Return 8% 15%
Source Debt Equity
Cost (After-Tax) 7% 16%
Action Invest Don't Invest
Reason 8% > 7% cost 15% < 16% cost
a. Evaluate the firm’s decision-making procedures, and explain why the acceptance of project 263 and rejection of project 264 may not be in the owners’ bestinterest.
b. If the firm maintains a capital structure containing 40% debt and 60% equity,
find its weighted average cost using the data in the table.
c. If the firm had used the weighted average cost calculated in part b, what actions
would have been indicated relative to projects 263 and 264?
d. Compare and contrast the firm’s actions with your findings in part c. Which decision method seems more appropriate? Explain why.
2. Drywall Systems, Inc., is presently in discussions with its investment bankers regarding the issuance of new bonds. The investment banker hasinformed the company that different maturities will carry different coupon rates and sell at different prices. Drywall Systems must choose among severalalternatives. In each case, the bonds will have a $1,000 par value and flotation costs will be $30 per bond. This implies that the firm will net $970 per bond,before the adjustment for the premium (+) or discount (-). The company is taxed at a rate of 40%. Calculate the after-tax costs of financing with each of thefollowing alternatives. Show work
AlternativeCoupon RateTime toMaturityPremium (+) or Discount (-)
Gator Fabrics Inc. currently has zero debt. It is a zero growth company, and it has the data shown below. Now the company is considering using some debt, moving to thenew debt/assets ratio indicated below. The money raised would be used to repurchase stock at the current price. It is estimated that the increase in risk resultingfrom the additional leverage would cause the required rate of return on equity to rise somewhat, as indicated below. If this plan were carried out, by how much wouldthe WACC change, i.e., what is WACC Old- WACC NEW?
New Debt/Assets 35%
Orig cost of equity, rs 10.0%
New Equity/Assets 65%
New cost of equity = rs 11.0%
Interest rate new = rd 7.0%
Tax rate 40%
Your landscaping company can lease a truck for $7,000 a year (paid at year-end) for 5 years. It can instead buy the truck for $30,000. The truck will be valuelessafter 5 years. The lease payments are an annuity due, so that the first payment comes immediately.
A.What is the present value of the lease payments, If the interest rate your company can earn on its funds is 6%.
B.Is it cheaper to buy or lease?
Suncoast Healthcare is planning to acquire a new x-ray machine that costs $200,000. The business can
either lease the machine using an operating lease or buy it using a loan from a local bank. Suncoast's
balance sheet prior to acquiring the machine is as follows:
Current assets $100,000 Debt $400,000
Net fixed assets $900,000 Equity $600,000
Total assets 1,000,000 Total claims $1,000,000
a. What is Suncoast's current debt ratio?
b. What would the new debt ratio be if the machine were leased? If it is purchased?
c. Is the financial risk of the business different under the two acquisition alternatives?
E15-2 Icy Treats, Inc., is a seasonal business that sells frozen desserts. At the peak of its summer selling season the firm has $35,000 in cash, $125,000 ininventory, $70,000 in accounts receivable, and $65,000 in accounts payable. During the slow winter period the firm holds $10,000 in cash, $55,000 in inventory, $40,000in accounts receivable, and $35,000 in accounts payable. Calculate Icy Treats' minimum and peak funding requirements.Seen 11 months ago Wilson Anderson 1 answers
Which of the following statements is CORRECT?
a. Because long-term bonds are riskier than short-term bonds, yields on long-term Treasury bonds will always be higher than yields on short-term T-bonds.
b. If the maturity risk premium (MRP) is greater than zero, then the yield curve must have an upward slope.
c. If the maturity risk premium (MRP) equals zero, the yield curve must be flat.
d. The yield curve can never be downward sloping.
e. If inflation is expected to increase in the future, and if the maturity risk premium (MRP) is greater than zero, then the Treasury yield curve will have an upwardslope.
12. Which one of these statements related to growing annuities and perpetuities is correct?
A. The cash flow used in the growing annuity formula is the initial cash flow at time zero.
B. Growth rates cannot be applied to perpetuities if you wish to compute the present value.
C. The future value of an annuity will decrease if the growth rate is increased.
D. An increase in the rate of growth will decrease the present value of an annuity.
E. The present value of a growing perpetuity will decrease if the discount rate is increased.
David Ortiz Motors has a target capital structure of 35% debt and 65% equity. The yield to maturity on the company's outstanding bonds is 10%, and the company's taxrate is 40%. Ortiz's CFO has calculated the company's WACC as 9.73%. What is the company's cost of equity capital? Round your answer to two decimal places.Seen 13 months ago Charlie Kyle 0 answers
an all-equity firm is considering the following projects:
project beta expected return
w .75 10.0
x .90 10.2
y 1.20 12.0
z 1.50 15.0
the t-bill rate is 5 percent and the expected return on the market is 11 percent.
which projects have a higher expected return than the firm's 11 percent cost of capital?
For bank loans, the effective interest rate is generally
a)not affected by whether or not the loan is a discount loan or a traditional loan.
b) higher if the loan is a premium loan.
c) lower if the loan is a discount loan.
d) higher if the interest is paid at maturity.
E) none of the above
You are an investor in common stock, and you currently hold a well-diversified portfolio that has an expected return of 20%, a beta of 2.8, and a total value of$30,000. You plan to increase your portfolio by buying 500 shares of X at $20 a share. X has an expected return of 15% with a beta of 1.5.
What will be the expected return of your portfolio after you purchase the new stock?
a. = 19%;
b. = 17.0%;
d. = 12.62%;
1)Samson Inc. needs €1,000,000 in 30 days. Samson can earn 5 percent annualized on a German security. The current spot rate for the euro is $1.00. Samson can borrowfunds in the U.S. at an annualized interest rate of 6 percent. If Samson uses a money market hedge, how much should it borrow in the U.S.?
2). To hedge a ____ in a foreign currency, a firm may ____ a currency futures contract for that currency.
a. receivable; purchase
b. payable; sell
c. payable; purchase
d. none of the above
Cowboy Corporation is estimating its WACC. The firm’s debt structure contains: (1) 30,100 long-term bonds with an 8.1% coupon, paid semiannually, a 10years-to-maturity, and a $1000 face-value which sells for $1200; (2) 20,200 callable long-term bonds with an 4.6% coupon, paid semiannually, a 15 years-to-maturity, an8-year call protection, an 8.1% call premium, and a $1000 face-value which sells for $850; and (3) 2000, 20-years-to-maturity, zero-coupon bonds that sell for 40% ofpar with a par of $25,000. The firm also has 500,000 shares of preferred stock which sells at $120 per share, and pays a 10 percent (of $100 par) annual dividend.Cowboy’s common stock, which will be paid a dividend of $4.00 next year, sells for $80.00 per share. Common dividends are expected to grow at a rate of 7 percent peryear. Cowboy has 2,000,000 common shares outstanding. The firm's marginal tax rate is 35 percent.
What are costs of debt, preferred stock, and equity components of capital, and WACC?
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