QUESTION Dividend constraints The Howe Companys stockholders equity account follows:Common stock (400,000 shares at $4 par)$1,600,000Paid-in capital in excess of par$1,000,000Retained earnings1,900,000Total stockholders equity$4,500,000The earnings available for common stockholders from this periods operations are $100,000, which have been included as part of the $1.9 million retained earnings.a. What is the maximum dividend per share that […]
QUESTION In mid-2012, Abercrombie & Fitch (ANF) had a book equity of $1693 million, a price per share of $35.48, and 82.55 million shares outstanding. At the same time, The Gap (GPS) had a book equity of $3017 million, a share price of $27.90, and 489.22 million shares outstanding. a. What is the market-to-book ratio […]
QUESTION EBITEPS and preferred stock Litho-Print is considering two possible capital structures, A and B, shown in the following table. Assume a 40% tax rate.Source of capitalStructure AStructure BLong-term debt$75,000 at 16%$50,000 at 15%coupon ratecoupon ratePreferred stock$10,000 with an 18%$15,000 with an 18%annual dividendannual dividendCommon stock8,000 shares10,000 sharesa. Calculate two EBITEPS coordinates for each of […]
QUESTION Rates of Return-Suppose a venture fund wishes to base its required return (used in discounting future terminal values) on its historical experience and suggests merely averaging the rates on the last three concluded deals. These deals realized total returns of -67 percent at the end of two years, 50 percent at the end of […]
QUESTION Optimal capital structure Hawaiian Macadamia Nut Company has collected the data in the following table with respect to its capital structure, expected earnings per share, and required return.Capital structureExpected earningsRequireddebt ratioper sharereturn, rs0%$3.1213%103.9015204.8016305.4417405.5119505.0020604.4022a. Compute the estimated share value associated with each of the capital structures, using the simplified method described in this chapter (see […]
QUESTION Chips Home Brew Whiskey management forecasts that if the firm sells each bottle of Snake-Bite for $20, then the demand for the product will be 15,000 bottles per year, whereas sales will be 90 percent as high if the price is raised 10 percent. Chips variable cost per bottle is $10, and the total […]
QUESTION Risk-adjusted discount ratesBasic Country Wallpapers is considering investing in one of three mutually exclusive projects, E, F, and G. The firms cost of capital, r, is 15%, and the risk-free rate, RF, is 10%. The firm has gathered the basic cash flow and risk index data for each project, as shown in the following […]
QUESTION What is the rationale for the payback method? According to the payback criterion, which franchise or franchises should be accepted if the firms maximum acceptable payback is 2 years, and if Franchises L and S are independent? If they are mutually exclusive? 1. Payback is the time required by the project to cover initial […]
QUESTION Expansion versus replacement cash flows Edison Systems has estimated the cash flows over the 5-year lives for two projects, A and B. These cash flows are summarized in the table below.a. If project A were actually a replacement for project B and if the $12,000 initialinvestment shown for project B were the after-tax cash […]
QUESTION Winston Company issued $1,000,000 of 10-year bonds on December 31, 2006. The bonds have a coupon rate of 12%, with interest paid semiannually on June 30 and December 31. The bonds were priced to yield 14%, and Winston received $893,640 in proceeds. How much interest expense will Winston recognize over the life of the […]
