How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask RD Your Own Question

RD
RD, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 8784
Experience:  MBA, CPA
Type Your Finance Question Here...
RD is online now
A new question is answered every 9 seconds

1. Leak Inc. forecasts the free cash flows (in millions) shown

Customer Question

1. Leak Inc. forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 11% and FCF is expected to grow at a rate of 5% after Year 2, what is the Year 0 value of operations, in millions? Assume that the ROIC is expected to remain constant in Year 2 and beyond (and do not make any half-year adjustments).
Year:                   1 2
Free cash flow: –$50 $100
a. $1,456
b. $1,529
c. $1,606
d. $1,686
e. $1,770



2. Suppose Leonard, Nixon, & Shull Corporation's projected free cash flow for next year is $100,000, and FCF is expected to grow at a constant rate of 6%. If the company's weighted average cost of capital is 11%, what is the value of its operations?
a. $1,714,750
b. $1,805,000
c. $1,900,000
d. $2,000,000
e. $2,100,000

3. Akyol Corporation is undergoing a restructuring, and its free cash flows are expected to be unstable during the next few years. However, FCF is expected to be $50 million in Year 5, i.e., FCF at t = 5 equals $50 million, and the FCF growth rate is expected to be constant at 6% beyond that point. If the weighted average cost of capital is 12%, what is the horizon value (in millions) at t = 5?
a. $719
b. $757
c. $797
d. $839
e. $883


4. Based on the corporate valuation model, Bernile Inc.'s value of operations
is $750 million. Its balance sheet shows $50 million of short-term investments that are unrelated to operations, $100 million of accounts payable, $100 million of notes payable, $200 million of long-term debt, $40 million of common stock (par plus paid-in-capital), and $160 million of retained earnings. What is the best estimate for the firm's value of equity, in millions?
a. $429
b. $451
c. $475
d. $500
e. $525

5. Which of the following statements is CORRECT?
a.When a company increases its debt ratio, the costs of equity and debt both increase. Therefore, the WACC must also increase.
b.The capital structure that maximizes the stock price is generally the capital structure that also maximizes earnings per share.
c. All else equal, an increase in the corporate tax rate would tend to encourage a company to increase its debt ratio.
d. Since debt financing raises the firm's financial risk, increasing a company's debt ratio will always increase its WACC.
e. Since debt is cheaper than equity, increasing a company's debt ratio will always reduce its WACC.


6.Which of the following statements is CORRECT?
a.The capital structure that maximizes the stock price is also the capital structure that minimizes the weighted average cost of capital (WACC).
b.The capital structure that maximizes the stock price is also the capital structure that maximizes earnings per share.
c.The capital structure that maximizes the stock price is also the capital structure that maximizes the firm's times interest earned (TIE) ratio.
d.Increasing a company's debt ratio will typically reduce the marginal costs of both debt and equity financing; however, this still may raise the company's WACC.
e. If Congress were to pass legislation that increases the personal tax rate but decreases the corporate tax rate, this would encourage companies to increase their debt ratios.



7. Business risk is affected by a firm's operations. Which of the following is NOT associated with (or does not contribute to) business risk?
a. Demand variability.
b. Sales price variability.
c. The extent to which operating costs are fixed.
d. The extent to which interest rates on the firm's debt fluctuate.
e. Input price variability.

8. If debt financing is used, which of the following is CORRECT?
a. The percentage change in net operating income will be greater than a given percentage change in net income.
b. The percentage change in net operating income will be equal to a given percentage change in net income.
c. The percentage change in net income relative to the percentage change in net operating income will depend on the interest rate charged on debt.
d. The percentage change in net income will be greater than the percentage change in net operating income.
e. The percentage change in sales will be greater than the percentage change in EBIT, which in turn will be greater than the percentage change in net income.

9. Vu Enterprises expects to have the following data during the coming year. What is Vu's expected ROE?

Assets $200,000 Interest rate 8%
D/A 65% Tax rate 40% EBIT $25,000

a. 12.51%
b. 13.14%
c. 13.80%
d. 14.49%
e. 15.21%
Submitted: 4 years ago.
Category: Finance
Expert:  RD replied 4 years ago.

I am working on the other questions....how soon do you need the answers..

 

5. Which of the following statements is CORRECT?
a.When a company increases its debt ratio, the costs of equity and debt both increase. Therefore, the WACC must also increase.
b.The capital structure that maximizes the stock price is generally the capital structure that also maximizes earnings per share.
c. All else equal, an increase in the corporate tax rate would tend to encourage a company to increase its debt ratio.
d. Since debt financing raises the firm's financial risk, increasing a company's debt ratio will always increase its WACC.
e. Since debt is cheaper than equity, increasing a company's debt ratio will always reduce its WACC.


6.Which of the following statements is CORRECT?
a.The capital structure that maximizes the stock price is also the capital structure that minimizes the weighted average cost of capital (WACC).
b.The capital structure that maximizes the stock price is also the capital structure that maximizes earnings per share.
c.The capital structure that maximizes the stock price is also the capital structure that maximizes the firm's times interest earned (TIE) ratio.
d.Increasing a company's debt ratio will typically reduce the marginal costs of both debt and equity financing; however, this still may raise the company's WACC.
e. If Congress were to pass legislation that increases the personal tax rate but decreases the corporate tax rate, this would encourage companies to increase their debt ratios.



7. Business risk is affected by a firm's operations. Which of the following is NOT associated with (or does not contribute to) business risk?
a. Demand variability.
b. Sales price variability.
c. The extent to which operating costs are fixed.
d. The extent to which interest rates on the firm's debt fluctuate.
e. Input price variability.

8. If debt financing is used, which of the following is CORRECT?
a. The percentage change in net operating income will be greater than a given percentage change in net income.
b. The percentage change in net operating income will be equal to a given percentage change in net income.
c. The percentage change in net income relative to the percentage change in net operating income will depend on the interest rate charged on debt.
d. The percentage change in net income will be greater than the percentage change in net operating income.
e. The percentage change in sales will be greater than the percentage change in EBIT, which in turn will be greater than the percentage change in net income.

9. Vu Enterprises expects to have the following data during the coming year. What is Vu's expected ROE?

Assets $200,000 Interest rate 8%
D/A 65% Tax rate 40% EBIT $25,000

a. 12.51%
b. 13.14%
c. 13.80%
d. 14.49%
e. 15.21%

Customer: replied 4 years ago.
tomorrow morning if possible, and if possible if theres an equation to solve the problem could you please let me know....
Expert:  RD replied 4 years ago.

1. Leak Inc. forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 11% and FCF is expected to grow at a rate of 5% after Year 2, what is the Year 0 value of operations, in millions? Assume that the ROIC is expected to remain constant in Year 2 and beyond (and do not make any half-year adjustments).
Year: 1 2
Free cash flow: -$50 $100
a. $1,456
b. $1,529
c. $1,606
d. $1,686
e. $1,770



2. Suppose Leonard, Nixon, & Shull Corporation's projected free cash flow for next year is $100,000, and FCF is expected to grow at a constant rate of 6%. If the company's weighted average cost of capital is 11%, what is the value of its operations?
a. $1,714,750
b. $1,805,000
c. $1,900,000
d. $2,000,000
e. $2,100,000

3. Akyol Corporation is undergoing a restructuring, and its free cash flows are expected to be unstable during the next few years. However, FCF is expected to be $50 million in Year 5, i.e., FCF at t = 5 equals $50 million, and the FCF growth rate is expected to be constant at 6% beyond that point. If the weighted average cost of capital is 12%, what is the horizon value (in millions) at t = 5?
a. $719
b. $757
c. $797
d. $839
e. $883


4. Based on the corporate valuation model, Bernile Inc.'s value of operations
is $750 million. Its balance sheet shows $50 million of short-term investments that are unrelated to operations, $100 million of accounts payable, $100 million of notes payable, $200 million of long-term debt, $40 million of common stock (par plus paid-in-capital), and $160 million of retained earnings. What is the best estimate for the firm's value of equity, in millions?
a. $429
b. $451
c. $475
d. $500
e. $525

 

Link to calculation on above questions

Link

RD, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 8784
Experience: MBA, CPA
RD and other Finance Specialists are ready to help you
Customer: replied 4 years ago.
Did you get my payment? Thanks so much for your fast help.
Expert:  RD replied 4 years ago.

Yes, I did.

Thanks.

Customer: replied 4 years ago.
ON questions 1,2,4 I see how you solved them on excel but do you know how to solve them by writing out the equation and also what the equation is named? I'm looking to learn how to solve questions 1,2,4 so a written explanation would be very helpful. Also I need help with a spreadsheet, how did you upload a link to to here?

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Rakhi Vasavada

    Financial and Legal Consultant

    Satisfied Customers:

    2073
    Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
< Last | Next >
  • http://ww2.justanswer.com/uploads/RA/rakhi.v/2012-7-3_14374_RakhiVasavadaL.64x64.jpeg Rakhi Vasavada's Avatar

    Rakhi Vasavada

    Financial and Legal Consultant

    Satisfied Customers:

    2073
    Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
  • http://ww2.justanswer.com/uploads/BU/BusinessTutor/2012-2-2_115741_Kouki2.64x64.jpg Manal Elkhoshkhany's Avatar

    Manal Elkhoshkhany

    Tutor

    Satisfied Customers:

    1890
    More than 5000 online tutoring sessions.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    1755
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JK/jkcpa/2011-1-16_182614_jkcpa.64x64.jpg JKCPA's Avatar

    JKCPA

    CPA

    Satisfied Customers:

    838
    Bachelors degree and CPA with Accounting experience.
  • http://ww2.justanswer.com/uploads/starside8/2010-2-16_55433_DSCN1175.JPG Eric's Avatar

    Eric

    Financial Manager

    Satisfied Customers:

    558
    Loan servicing, counseling and real estate expert. Foreclosure Expert and Financial Planner.
  • http://ww2.justanswer.com/uploads/FA/fastfile/2011-12-15_23139_Klein2011small.64x64.jpg R. Klein, EA's Avatar

    R. Klein, EA

    Accountant

    Satisfied Customers:

    397
    Intuit Ask a Tax Expert. QuickBooks Certified Pro Advisor (all editions)
  • http://ww2.justanswer.com/uploads/dkaplun/2009-05-17_173121_headshot_1_2.jpg Dimitry K., Esq.'s Avatar

    Dimitry K., Esq.

    Attorney

    Satisfied Customers:

    324
    NASD Licensed Rep, 1997-2001, Business Attorney