QUESTION Cash acquisition decision Luxe Foods is contemplating acquisition of Valley Canning Company for a cash price of $180,000. Luxe currently has high financial leverage and therefore has a cost of capital of 14%. As a result of acquiring Valley Canning, which is financed entirely with equity, the firm expects its financial leverage to be […]
QUESTION N and M Corp. is considering leasing a new machine for $25,000 per year. The lease arrangement calls for a 5-year lease with an option to purchase the machine at the end of the lease for $3,500. The firm is in the 34% tax bracket. What is the present value of the lease outflows, […]
QUESTION Aggressive versus conservative seasonal funding strategy Dyna base Tool has forecast its total funds requirements for the coming year as shown in the following table.MonthAmountMonthAmountJanuary$2,000,000July$12,000,000February2,000,000August14,000,000March2,000,000September9,000,000April4,000,000October5,000,000May6,000,000November4,000,000June9,000,000December3,000,000a. Divide the firms monthly funds requirement into (1) a permanent component and (2) a seasonal component, and find the monthly average for each of these components.b. Describe the amount […]
QUESTION EOQ analysis Thompson Paint Company uses 60,000 gallons of pigment per year. The cost of ordering pigment is $200 per order, and the cost of carrying the pigment in inventory is $1 per gallon per year. The firm uses pigment at a constant rate every day throughout the year.a. Calculate the EOQ.b. Assuming that […]
QUESTION Stock dividendInvestor Sarah Warren currently holds 400 shares of Nutri- Foods. The firm has 40,000 shares outstanding. The firm most recently had earnings available for common stockholders of $80,000, and its stock has been selling for $22 per share. The firm intends to retain its earnings and pay a 10% stock dividend.a. How much […]
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 […]
