Expert Answer :Fin370 Tutoring assist

Solved by verified expert :#1) Weighted average cost capital The target capital structure for QM Industries is 42% common stock, 12% preferred stock, and 46% debt. If the cost of common equity for the firm is 18.1%, the cost of preferred stock is 10.1%, the beforetax cost of debt is 8.9%, and the firm’s tax rate is 35%, what is QM’s weighted average cost of capital? QM’s WACC is ____%? (Round to three decimal places) #2) Weighted average cost of capital Crypton Electronics has a capital structure consisting of 41% common stock and 59% debt. A debt issue of $1,000 par value, 5.6% bonds that mature in 15 years and pay an annual interest will sell for $975. Common stock of the firm is currently selling for $30.68 per share and the firm expects to pay a $2.15 dividend next year. Dividends have grown at the rate of 4.8% per year and are expected to continue to do so for the forseeable future. What is Crypton’s cost of capital where the firm’s tax rate is 30%? Crypton’s cost of capital is ____%? (Round to three decimal places) #3) Weighted average cost of capital The target captial structure for Jowers Manufacturing is 45% common stock, 16% preferred stock, and 39% debt. If the cost of common equity for the firm is 19.7%, the cost of preferred stock is 11.6%, and the beforetax cost of debt is 10.2%, what is Jower’s cost of capital? The firm’s tax rate is 34%. Jower’s WACC is ____%? (Round to three decimal places) #4) Weighted average cost of capital As a member of the Finance Department of Ranch Manufacturing your supervisor has asked you to compute the appropriate discount rate to use when evaluating the purchase of new packaging equipment for the plant. Under the assumption that the firm’s present capital structure reflects the appropriate mix of capital sources for the firm, you have determined the market value of the firm’s capital structure as follows: Source of Capital Market Values Bonds ——————————- $3,600,000 Preferred stock ——————— $1,700,000 Common stock ———————— $5,600,000 To finance the purchses, Ranch Manufacturing will sell 10-year bonds paying 7.1% per year at the market price of $1026. Preferred stock paying $1.92 dividend can be sold for $25.29. Common stock for Ranch Manufacturing is currently selling for $54.21 per share and the firm paid $3.07 dividend last year. Dividends are expected to cotninue growing at a rate of 5.1% per year into the indefinite future. If the firm’s tax rate is 30%, what discount rate should you use to evaluate the equipment purchase? Ranch Manufacturing’s WACC is ______%? (Round to three decimal places) #5) EBIT-EPS Analysis Abe Forrester and three of his friends from college have interested a group of venture capitalists in backing their business idea. The proposed operation would consist of a series of retail outlets to distribute and service a full line of vacuum cleaners and accessories. The stores would be located in Dallas, Houston, and San Antonio. To finance the new venture two plans have been proposed: * Plan A is an all-common-equity structure in which $2.1 million dollars would be raised by selling 88,000 shares of common stock. * Plan B would involve issuing $1.3 million dollars in long-term bonds with an effective interest rate of 11.9% plus $0.8 million would be raised by selling 44,000 shares of common stock. The debit funds raised under Plan B have no fixed maturity date, in that this amount of financial leverage is considered a permanent part of the firm’s capital structure. Abe and his partners plan to use a 35% tax rate in their analysis, and they have hired you on a consulting basis to do the following: a. Find the EBIT indifference level associated with the two financial plans b. Prepare a pro forma income statement for the EBIT level solved for in Part a. that shows the EPS will be the same regardless whether Plan A or Plan B is chosen. Please round the indifference level associated with the two financial plans to the nearest dollar: $___________ #6) EBIT-EPS Analysis Three recent graduates for the computer science program at the University of Tennessee are forming a company that will write and distribute new application software for the iPhone. Initially, the corporation will operate in the southern region of Tennessee, Georgia, North Carolina, and South Carolina. A small group of private investors in the Atlanta, Georgia area is interested in financing the startup company and two financing plans have been put forth for consideration: * The firt (Plan A) is an all-common-equity capital structure. $2.3 million dollars would be raised by selling common stock at $20 per common share. * Plan B would involve the use of financial leverage. $1.4 million dollars would be raised by selling bonds with an effective interest rate of 10.9% (per annum), and the remaining $0.9 million would be raised by selling common stock at the $2o per share price. The use of financial leverage is considered a permanent part of the firm’s capitalization, so no fixed maturity date is needed for the analysis. A 30% tax rate is deemed appriopriate for the analysis. a. Find the EBIT indifference level associated with the two financial plans. (Please round to the nearest dollar) b. A detailed financial analysis of the firm’s prospects suggests that the long-term EBIT will be above $309,000 annually. Taking this into consideration, which plan will generate the higher EPS? #7) Weighted average cost capital Crypton Electronics has a capital structure consisting of 38% common stock and 62% debt. A debt issue of $1,000 par value, 5.8% bonds that mature in 15 years and pay annual interest will sell for $979. Common stock of the firm is currently selling for $30.01 per share and the firm expects to pay a $2.21 dividend next year. Dividends have grown at the rate of 4.5% per year and are expected to continue to do so for the foreseeable future. What is Cyrpton’s cost of capital where the firm’s tax rate is 30%? Cryptons’s cost of capital is ________%? (Round to three decimal places) #8) Weighted average cost of capital The target capital structure for Jowers Manufacturing is 47% common stock, 19% preferred stock, and 34% debt. If the cost of common equity for the firm is 19.2%, the cost of preferred stock is 11.5%, and the beforetax cost of debt is 10.3%, what is Jower’s cost of capital? The firm’s tax rate is 34%. Jower’s WACC is ______%? (Round to three decimal places) #9) Weighted average cost of capital As a member of the Finance Department of Ranch Manufacturing, your supervisor has asked you to compute the appropriate discount rate to use when evaluating the purchase of new packaging equipment for the plant. Under the assumption that the firm’s present capital structure reflects the appropriate mix of capital sources for the firm, you have determined the market value of the firm’s capital structure as follows: Sources of Capital Market Values Bonds ————————————- $3,600,000 Preferred stock ————————— $1,800,000 Common stock —————————— $5,500,000 To finance the purchase, Ranch Manufacturing will sell 10-year bonds paying 6.9% per year at the market price of $1025. Preferred stock paying a $2.06 dividend can be sold for $25.45. Common stock for Ranch Manufacturing is currently selling for $54.35 per share and the firm paid a $3.04 dividend last year. Dividends are expected to continue growing at a rate of 5.5% per year into the indefinite future. If the firm’s tax rate is 30%, what discount rate should you use to evaluate the equipment purchase? Ranch Manufacturing’s WACC is ________%? (Round to three decimal places) #10) EBIT – EPS Anaylsis Abe Forrester and three of his friends from college have interested a group of venture capitalists in backing their business idea. The proposed operation would consist of a series of retail outlets to distribute and serive a full line of vacuum cleaners and accessories. These stores would be located in Dallas, Houston, and San Antonio. To finance the new venture two plans have been proposed: * Plan A is an all-common-equity structure in which $2.1 million dollars would be raised by selling 90,000 shares of common stock. * Plan B would involve issuing $1.3 million dollars in long-term bonds with an effective interest rate of 12.4% plus $0.8 million would be raised by selling 45,000 shares of common stock. The debt funds raised under Plan B have no fixed maturity date, in that this amount of financial leverage is considered a permanent part of the firm’s capital structure. Abe and his partners plan to use a 35% tax rate in their analysis, and they have hired you on a consulting basis to do the following: a. Find the EBIT indifference level associated with the two financial plans. (Round to the nearest dollar) b. Prepare a pro forma income statement for the EBIT level solved for in Part a. that shows that EPS will be the same regardless whether Plan A or B is chosen. The EBIT indifference level associated with the two financial plans is $________ (Round to the nearest dollar) #11) EBIT-EPS Analysis Three recent graduates of the computer science program at the University of Tennessee are forming a company that will write and distribute new application software for the iPhone. Initially, the corporation will operate in the southern region of Tennessee, Georgia, North Carolina, and South Carolina. A small group of private investors in the Atlanta, Georgia are interested in financing the startup company and two financing plans have been put forth for consideration: * The first (Plan A) is an all-common-equity capital structure. $2.1 million dollars would be raised by selling common stock at $20 per common share. * Plan B would involve the use of financial leverage. 41.3 million dollars would be raised by selling bonds with an effective interest rate of 10.5% (per annum), and the remaining $0.8 million would be raised by selling common stock at the $20 price per share. The use of financial leverage is considered to be a permanent part of the firm’s capitalization, so no fixed maturity date is needed for the analysis. A 30% tax rate is deemed appropriate for the analysis. a. Find the EBIT indifference level associated with the two financial plans. (Please round to the nearest dollar) b. A detailed financial analysis of the firm’s prospects suggest that thelong-term EBIT will be above $338,000 annually. Taking this into consideration, which plan will generate the higher EPS?