financial leverage | Business & Finance homework help

Gordon’s Plants has the subjoined local pay declaration for 2012:

Earnings anteriorly concern and taxes          $4,500

Interest                                                                                (2,000)

Earnings anteriorly taxes                                    $2,500

Taxes (40%)                                                        (1,000)

Net pay                                                        $1,500  

Number of sordid shares                          1,000  

 

What is the amount of financial leverage for Gordon’s? What does this appraise medium?

 

Consider the conclusion you sway keep to form if you won a particularize lottery scold $105 darling.  Which would you cull: a lump-sum acquittal of $54 darling today or a acquittal of $3.5 darling each year for the contiguous 30 years? Which should you cull?

A.      If your opening consume is 6 percent, which resource should you selected?

B.      At what opening consume would you be lukewarm between the two resources?

 

Suppose Ford Motor Concourse sold an manifestation of bonds delay a 10-year manliness, a $1000 par appraise, a 10 percent coupon scold, and semiannual concern acquittals.

A.      Two years aftercited the bonds were manifestationd, the going scold of concern on bonds such as these subvert to 6 percent. At that estimate would the bonds hawk?

B.      Suppose that the concern scold remained at 6 percent for the contiguous prospect years. What would fall to the estimate of the Ford Motor Concourse bonds redress era?

 

Your broker offers to hawk you some shares of Wingler & Concourse sordid accumulation, which paid a dividend of $2 yesterday. You anticipate the dividend to advance at a scold of 5 percent per year into constancy. The misapply scold of repay for the accumulation is 12 percent.

A.      If you alienation the Wingler & Concourse accumulation delay the fixed of hawking it in three years, what specie flows procure you admit each year?

B.      What is the dispense appraise of Wingler’s accumulation?

 

The dispense and Accumulation S keep the subjoined appearance distributions:

 

                Appearance          rm            rs

                      0.3                    15%        20%

                      0.4                    9              5

                      0.3                    18           12

 

a.       Calculate the anticipateed scolds of repay for the dispense and Accumulation S

b.      Calculate the test deviations for the dispense and Accumulation S

c.       Calculate the coefficients of deviation for the dispense and Accumulation S

 

The Gupta Company’s consume of equity is 16 percent. It’s anteriorly-tax consume of default is 13 percent, and its ultimate tax scold is 40 percent. The accumulation hawks at compass appraise.  Using the subjoined redress sheet, estimate Gupta’s aftercited-tax weighted mediocre consume of capital:

 

Assets                                                                                   Liabilities and Equity

Cash                                                      $120                       Long-term default                                                $1,152

Accounts receivable                         240                       Equity                                                     1,728

Inventories                                           360

Net set and equipment           2,160                                                                                                      

Total assets                                   $2,880                        Total liabilities and equity             $2,880

 

Your concourse is regarding two mutually scientific plans—C and R—whose consumes and specie flows are shown in the subjoined tables:

 

                                                Expected Net Specie Flows

                Year                       Plan C              Plan R

                0                              $(14,000)             $(22,840)

                1                              8,000                     8,000

                2                              6,000                     8,000

                3                              2,000                     8,000

                4                              3,000                     8,000

 

 

The plans are resembling intrepid, and their required scold of repay is 12 percent. You must form a monition of which plan should be alienationd.  To indicate which is more misapply, appraise the NPV and IRR of each plan.

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