Answer AR= 20x20000=400,000 3-2 Debt Ratio Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and common equity. What is the company’s debt ratio? Answer Equity multiplier Asset /equity = 2.5/1 A=L+E 2.5=1.5=+1 Debt/asset = 1.5/2.5 = .6 3-3 Market/Book Ratio Winston Washers’s stock price is $75 per share. Winston has $10 billion in total as- sets.
$20,000*20 days outstanding= AR $400,000 3-2 Debt Ratio Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and common equity. What is the company’s debt ratio? Equity Multiplier= 2.5 Asset/Equity = 2.5/1 1+1.5= 2.5 Debt/Asset= 1.5/2.5= .6 3-3 Market/Book Ratio Winston Washer’s stock price is $75 per share. Winston has $10 billion in total assets.
6 percent in the second year. c. 5 percent in the third year. What would be the third year future value? (LG4-3) FV = 350 × (1 + 0.08) (1 + 0.06) (1 + 0.05) 350 × 1.08 × 1.06 × 1.05 Answer: 420.71 4-8 Compounding with Different Interest Rates A deposit of $750 earns interest rates of 10 percent in the first year and 12 percent in the second year. What would be the second year future value?
Answer AR= 20x20000=400,000 3-2 Debt Ratio Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and common equity. What is the company’s debt ratio? Answer Equity multiplier Asset /equity = 2.5/1 A=L+E 2.5=1.5=+1 Debt/asset = 1.5/2.5 = .6 3-3 Market/Book Ratio Winston Washers’s stock price is $75 per share. Winston has $10 billion in total as- sets.
The ex-dividend date is March 19 and there are 1 million shares outstanding. The payment date is set at March 31. Show all the necessary journal entries for this set of dividend transactions. (Points : 20) 5. The weight of common stock in a company is 50%, the weight of preferred stock is 10% and the weight of long-term debt is 40%.
4.4% 5.2% c. 4.6% 4.8% d. 4.6% 5.2% e. 4.8% 5.2% Answer: a 5%*(1 – 0.2)*0.6 + 5%*0.4 = 4.4%, 5%*(1 – 0.2)*0.6 + 6%*0.4 =4.8% 3. Given D1 = $1.00 and K=10%, what is the value of the stock at 8% growth rate? If the current price of the stock is $50, would you buy it? a. $55, Buy b.
5-1 Exercise Preparing a Contribution Format Income Statement Wheeler Corporation's most recent income statement follows: Total Sales (8,000 units) Variable expenses Contribution margin Fixed expenses Net operating income Required: $208,000 144,000 $64,000 56,000 $8,000 Per Unit $26.00 18.00 $8.00 Prepare a new contribution format income statement under each of the following conditions (consider each case independently): 1. The sales volume increases by 50 units. The new income statement would be: Total Sales (8050 units) Variable expenses Contribution margin Fixed expenses Net Operating Income $209,300 144,900 $64,400 56,000 $8,400 Per unit $26.00 18.00 $8.00 As an alternative, you could have found the net income using the following method: Original net operating income Change in contribution margin (50 units * $8.00 per unit) New net operating income $8,000 400 $8,400 2. The sales volume declines by 50 units. Sales (7950 units) Variable expenses Contribution margin Fixed expenses Net Operating Income $206,700 143,100 $63,600 56,000 $7,600 $26.00 18.00 $8.00 As an alternative, you could have found the net income using the following method: Original net operating income Change in contribution margin (-50 units * $8.00 per unit) New net operating income 3.
cost of equity =I used the 20 year at 5.74%+Geometric mean=5.9%x most recent beta .69=9.81% Cost of Debt I used Yield to maturity to find cost of debt From Exhibit 4 PV= 95.60 N=40 (20years x 2) since its paid semiannually Pmt=-3.375 (6.75/2) FV=-100 Comp I = 3.58% (semiannual) 7.16% (annual) After tax cost of debt = 7.16%(1-38%) = 4.44% E = market value of the firm's equity To find Market value of Equity you multiply share price by amount of shares $42.09x273.3= 11503. D = market value of the firm's debt I valued book value of debt at 1,291 Then divide 11503/(11503+1291)=89.9 so the weight for debt is 10.1 percent When I calculated WACC 4.44%x.101+9.81%x.899= 9.27% Cohen made a few mistakes when she calculated her WACC. First, she used historical data in
100+1000-850/12/1000+850/2 = 112.5/925 = .1216 or 12.16% • 5-6 Maturity Risk Premium The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years. A 2-year Treasury security yields 6.3%. What is the maturity risk premium for the 2-year security? 6.3-3-3 = 0.3% Intermediate Problems 7-20 • 5-7 Bond Valuation with Semiannual payments Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%.
During 2007 and 2008, Browser reported net income of $90,000 and $50,000 and paid dividends of $40,000 and $60,000, respectively. Fire wire reported a balance in its investment account of $230,000 on December 31, 2008. It uses the equity method in accounting for this investment. g. What is the annual amount of amortization of differential over the ten year period? h. In 2007, will Fire Wire report and increase or a decrease in the investment account balance?