CHAPTER TWO PROBLEMS 1. Last year Rattner Robotics had $5 million in operating income (EBIT). The company had net depreciation expense of $1 million and an interest expense of $1 million; its corporate tax rate was 40 percent. The company has $14 million in current assets and $4 million in non-interest-bearing current liabilities; it has $15 million in net plant and equipment. It estimates that it has an after-tax cost of capital of 10 percent.
ACC 291 Final Exam Question Answers Multiple Choice Question 86 An aging of a company's accounts receivable indicates that $4,500 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to record bad debts for the period will require a • debit to Bad Debt Expense for $4,500. • debit to Bad Debt Expense for $3,300. • credit to Allowance for Doubtful Accounts for $4,500. • debit to Allowance for Doubtful Accounts for $3,300.
WE PROVIDE CASE STUDY ANSWERS, ASSIGNMENT SOLUTIONS, PROJECT REPORTS AND THESIS aravind.banakar@gmail.com ARAVIND - 09901366442 – 09902787224 CORPORATE FINANCE CASE STUDY : 1 Reliance company has a $ 1,000 face value convertible bond issue that is currently selling in the market for $ 950. Each bond is exchangeable at any time for 25 shares of the company’s stock. The convertible bond has a 7 percent coupon. Payable semi-annually. Similar non-convertible bonds are priced to yield 10 percent.
Berry‟s Bug Blasters had a 25.52% Return on assets. This means they were able to receive $25.52 profit on every $100 in assets. Return on Common Stockholders‟ Equity: Determines corporate profitability. Investors can measure how Berry‟s is using the money they invested. To calculate ROE divide Net Profit after Taxes by Stockholder‟s Equity.
What is the horizon value as of 12/31/2011? * c. What is the value of operations as of 12/31/2010? * d. What is the total value of the company as of 12/31/2010? * e. What is the intrinsic price per share for 12/31/2010? Income Statements for the Year Ending December 31 (Millions of Dollars Except for Per Share Data) | Actual 2010 | Projected 2011 | | Net sales | $ 500.0 | $ 530.0 | Costs (except depreciation) | 360.0 | 381.6 | Depreciation | 37.5 | 39.8 | Total operating costs | $ 397.5 | $ 421.4 | Earnings before interest and taxes | $ 102.5 | $ 108.6 | Less interest | 13.9 | 16.0 | Earnings before taxes | $ 88.6 | $ 92.6 | Taxes (40%) | 35.4 | 37.0 | Net income before preferred dividends | $ 53.2 | $ 55.6 | Preferred dividends | 6.0 | 7.4 | Net income available for common dividends | $ 47.2 | $ 48.2 | Common dividends | $ 40.8 | $ 29.7 | Addition to retained earnings | $ 6.4 | $ 18.5 | Number of shares | 10 | 10 | Dividends per share | $ 4.08 | $ 2.97 | Balance Sheets for December 31 (Millions of Dollars) | Actual 2010 | Projected 2011 | | Assets | | | | | Cash | $ 5.3 | $ 5.6 | | | Marketable securities | 49.9 |
Reporting Intercorporate Interests (Equity vs Cost Method) 1. On January 1, 2007, Rotor Corporation acquired 30 percent of Stator Company’s Stock for $150,000. On the acquisition date, Stator reported Net assets of $450,000 valued at historical cost and %500,000 stated at fair Value. The difference was due to the increased value of buildings with a remaining life of 15 years. During 2007 and 2008 Stator reported Net Income of $25,000 and $15,000 and paid dividends $10,000 and $12,000, respectively.
If Krell is expected to pay a dividend of $0.88 this year, and its stock price is expected to grow to $23.54 at the end of the year, what is Krell’s dividend yield and equity cost of capital? Answer: Dividend Yield = Dividend / Share price = 0.88/22 = 4% Capital Gain Rate = (End of year stock price – Share price today) / Share price today = (23.54 – 22) / 22 = 7% Total expected return (Equity cost of capital) = 4% + 7% = 11% 9-5 No Growth Company NoGrowth Corporation currently pays a dividend of $2 per year, and it will continue to pay this dividend forever. What is the price per share if its equity cost of capital is 15% per year? Answer: Assume: dividends are paid at the end of the year Stock pays a total of $2.00 in dividends per year. Valuing this dividend as a perpetuity: P = $2.00 / 0.15 = $13.33 9-6 Value of Operations of Constant Growth Summit Systems will pay a dividend of $1.50 this year.
The capital raised from initial public stock offerings had an estimated amount around $13 billion in the 4th quarter of the year 1995: an almost $7 billion dollar increase from the 4th quarter of the previous year (1994). With the knowledge that underwriters tend to underprice IPO’s, it is safe to say that with the increase in offerings in 1995, the price per share rage should be above $10 to $15. The company gained 2.2 million at 11.5% in debt to the Massachusetts Industrial Finance Authority to finance engineering and design improvements. Repayment of the debt consisted of principle payments of $50,000 in 1995, $75,000 in 1996-1998, $100,000 in both 1999 and 2000, and after that it was required that the balance be paid off. Boston Beer also entered into a $14 million line of credit with Fleet Bank, allowing borrowing at an interest rate equal to 8.75%.
The asset purchase option will generate $700,000 million more tax obligation than stock purchase do. However, under the asset purchase method, the goodwill generated from this transaction could be depreciated over 15 years, or $900,000 annually over 15 years. To justify the price of $40 million, we adjusted an APV approach. We derived the unlevered beta from the comparable firm Modtech. Adding other assumptions to our valuation model, we concluded a firm value of $83.92 million, and 73% of the firm value is $65.17 million.
2.0 Task 1 In 2012 Inbox Software had 9,000 million shares of common stock authorized,4,260 million in issue, and 3,847 million outstanding (figure rounded to the nearest million). Its equity account was as follows: Common stock $ 213 Additional paid-in capital 5,416 Retained earnings 10,109 Treasury shares 6,851 Currency translation adjustment and contributions to an employee benefit trust have been deducted from retained earnings. 1.1 What was the par value of each share? $213 million4,260 million share = $0.05 per share 1.2 What was the average price at which shares were sold? $213 million+$5416 million4,260 million share= $132 per share 1.3 How many shares had been repurchased?