We calculated cost of equity using the CAPM method, where re = rf + B(EMRP) The case stated that the BBB+ rated bonds have an interest rate of 5.5%, or 125 bps over the current yield on 10 year US treasury bonds. Given that this is the only information in the case about any rate of return on treasuries, we used 5.5% - 1.25% = 4.25% for the risk free rate. The equity market risk premium is given as 5% To calculate beta, we took the equity betas given for comparable companies in exhibit 7 and unlevered them using their respective net debt to equity ratios and a tax rate of 40%. We took the average of those un-levered betas and re-levered them under the assumption of zero debt financing (essentially just leaving them unlevered as debt/equity is 0/1). Note - we excluded Agile Connections from our comparable set as it had negative net income and thus do not reflect the risk profile and operations of our company.
If she were to move to another state where her marginal state rate would be 10 percent, would her choice be any different? Assume that Dana itemizes deductions. When the state rate is 5 percent, Dana would achieve the following returns from the Treasury bond or the corporate bond: The Treasury bond yields $1,125 or $30,000 x [.05 x (1-.25)] after tax. The corporate bond yields $1,282.50 or $30,000 x [.06 x (1 - .25 - .05(1-.25))] after tax. Note that the actual state rate is reduced by 25% to allow for the deductibility of state income taxes on the federal income tax return.
2) The sales budget calculates how much the company will spend to produce the required number of units. The president should do further consideration in terms of capital and labor costs. Does company have an adequate capital to produce the required number of units? And if the answer is no, they should look for other alternatives such as borrowing and others. 3) The sales budget is to estimate the profitability.
Assume that the bond is a zero coupon bond (i.e., the only payment is the one at maturity) and that company Z has no other debt outstanding. Other relevant parameters are as follows: • • • • • Company Z current asset value: €100 million Total bond issue face value: €80 million (i.e., leverage of 80%) Risk free interest rate: 2% Standard deviation of return on company Z assets: 30% Bond maturity date: one year from
Question: : (TCO D) A company issues $5,000,000, 7.8/%, 20-year bonds to yield 8% on January 1, 2010. Interest is paid on December 31. The proceeds from the bonds are $4,901,036. Using effective-interest amortization, how much interest expense will be recognized in 2010? 15.
5) Information about Clearwater Company's direct materials cost follows: Standard price per materials ounce $ 100 Actual quantity used 8,700 grams Standard quantity allowed for production 9,100 grams Price variance $ 76,125 F ________________________________________ Required: What was the actual purchase price per gram? (Round your answer to 2 decimal places. Omit the "$" sign in your response.) Actual purchase price $ 91.25 Total grade: 0.0×1/1 = 0% Feedback: Actual Costs = AP × 8,700 Actual Inputs at Standard Price = $100 × 8,700 =$870,000 Price Variance = $76,125 F 8,700 × AP = $870,000 – $76,125 AP = $91.25 ________________________________________ Question 3: Score
Chapter 9 Required 1. Review the earnings per share forecasts. Comment on how these forecasts could influence the market value of the common stock. 2. What is the price/earnings ratio for your company? 3.
QUESTIONS 1. Table 1 contains the complete cash flow analysis based on GP Manufacturing’s basic information. Explain the inputs into 1) the net initial investment outlay at year 0, 2) the depreciation tax savings in each year of the project’s economic life, and 3) the project’s incremental cash flows? 2. What is the project’s NPV?
The organization needs to select the fees, promotion, location, and productivity methods to optimize profits. The CVP analysis provides the organization with data to make these decisions (Kimmel, Weygandt, & Kieso, 2009). The CVP income statement applies the information in a format used with staff. The CVP income statement organizes fees in categories such as variable cost, fixed cost, contribution margin, and net income (Kimmel, Weygandt, & Kieso, 2009). Break-even analysis The association of the CVP analysis is the movement of fixed and variable costs.
Suppose one of GP Manufacturing’s executives typically uses the payback as a primary capital budgeting decision tool and wants some payback information. a. What is the project’s payback period? Projected payback period = 4.28 (cell B73) b. What is the rationale behind the use of payback as a project evaluation tool?