QUESTION Pro forma income statement Euro Designs, Inc., expects sales during 2013 to rise from the 2012 level of $3.5 million to $3.9 million. Because of a scheduled large loan payment, the interest expense in 2013 is expected to drop to $325,000. The firm plans to increase its cash dividend payments during 2013 to $320,000. […]
QUESTION 1. Accounts receivable management An evaluation of the books of Blair Supply, which follows, gives the end-of-year accounts receivable balance, which is believed to consist of amounts originating in the months indicated. The company had annual sales of $2.4 million. The firm extends 30-day credit terms.Month of originAmounts receivableJuly$ 3,875August2,000September34,025October15,100November52,000December193,000Year-end accounts receivable$300,000a. Use the […]
QUESTION 1. Balance sheet preparation Adam and Arin Adams have collected their personal asset and liability information and have asked you to put together a balance sheet asof December 31, 2012. The following information is receivedfrom the Adams family.Cash$ 300Retirement funds, IRA$ 2,000Checking3,0002011 Sebring15,000Savings1,2002010 Jeep8,000IBM stock2,000Money market funds1,200Auto loan8,000Jewelry and artwork3,000Mortgage100,000Net worth76,500Medical bills payable250Household furnishings4,200Utility […]
QUESTION Average corporate tax rates Using the corporate tax rate schedule given in Table 2.1, perform the following:a. Calculate the tax liability, after-tax earnings, and average tax rates for the following levels of corporate earnings before taxes: $10,000; $80,000; $300,000; $500,000; $1.5 million; $10 million; and $20 million.b. Plot the average tax rates (measured on […]
QUESTION The Byer Corporation, which has a 16 percent after-tax cost of capital, is considering the acquisition of the Cellar Company, which has about the same degree of systematic risk. If the merger were effected, the incremental cash flows would be as follows:AVERAGE FOR YEARS (in millions)1561011151620Annual cash income attributable to Cellar$10$15$20$15Required new investment251010Net after-tax […]
QUESTION Gillis Manufacturing Company has in its capital structure $20 million of 13.5 percent sinking-fund debentures. The sinking-fund call price is $1,000 per bond, and sinking-fund payments of $1 million in face amount of bonds are required annually. At present, the yield to maturity on the debentures in the market is 12.21 percent. To satisfy […]
QUESTION NPV and IRR Benson Designs has prepared the following estimates for a long term project it is considering. The initial investment is $18,250, and the project is expected to yield after-tax cash inflows of $4,000 per year for 7 years. The firm hasa 10% cost of capital.a. Determine the net present value (NPV) for […]
QUESTION Rebecca Isbell Optical Corporation is trying to determine an appropriate capital structure. It knows that, as its financial leverage increases, its cost of borrowing will eventually increase as will the required rate of return on its common stock. The company has made the following estimates for various financial leverage ratios.REQUIRED RATE OF RETURN ON […]
QUESTION Herky Foods is considering acquisition of a new wrapping machine. The initial investment is estimated at $1.25 million, and the machine will have a 5-year life with no salvage value. Using a 6% discount rate, determine the net present value (NPV) of the machine given its expected operating cash inflows shown in the following […]
QUESTION The Totally Tubular Tube Company wishes to evaluate three new investment proposals. The firm is concerned with the impact of the proposals on its total risk. Consequently, it has determined expected values and standard deviations of the probability distributions of possible net present values for the possible combinations of existing projects, E, and investment […]
