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Linda_us
Linda_us, Finance, Accounts & Homework Tutor
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Experience:  Post Graduate Diploma in Management (MBA)
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Need help with finance homework. I can upload my work that

Resolved Question:

Need help with finance homework. I can upload my work that i need help with.
Submitted: 1 year ago.
Category: Homework
Expert:  Linda_us replied 1 year ago.
Hi

Welcome and Thanks for using this service. Please post your questions.

Regards

Linda
Customer: replied 1 year ago.


Thanks Linda. How can upload my worok the questions are a bit long?

Expert:  Linda_us replied 1 year ago.

You can upload them here on site itself.

Click here to see process

or you can use file sharing website like www.box.com and once you upload the file, you can share the link here.

Customer: replied 1 year ago.

I posted here...


 



  1. (Weighted average cost of capital). The target capital structure for QM industries is 39% common stock, 14% preferred stock, and 47% debt. If the cost of common equity for the firm is 18.4%, the cost of the preferred stock is 10.9%, the before-tax is 8.4%, 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.)


 



  1. (Weight average cost of capital). Crypton Electronics has a capital structure consisting of 36% common stock and 64% debt. A debt use of $1,000 par value, 6.5% bonds that mature in 15 years and pay annual interest will sell for $976. Common stock of the firm is currently selling for $29.23 per share and the firm expects to pay a $2.24 dividend next year. Dividends have grown at the rate of 5.5% per year and are expected to continue to do so for the foreseeable 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 place).


 



  1. (Weighted average cost of capital). The target capital structure for Jowers Manufacturing is 50% common stock, 19% preferred stock, and 31% debt. If the cost of common equity for the firm is 20.2%, the cost of preferred stock is 11.9%, and the before tax cost of debt is 10.6%, what is Jowers’ cost of capital? The firm’s tax rate is 34%.


Jowers’ WACC is _________%(Round to three decimal places)


 



  1. (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 source for the firm, you have determined the market value of the firm’s capital structure as follows:


























Data Table



 



Source of Capital



Market Values



Bonds



$4,300,000



Preferred Stock



$2,400,000



Common Stock



$6,200,000



 


 


 


To finance the purchase, Ranch Manufacturing will sell 10-year bonds paying 7.4% per year at the market price of $1,039. Preferred stock paying a $1.98 dividend can be sold for $24.88. Common stock for Ranch Manufacturing is currently selling for $54.18 per share and the firm paid a $2.94 dividend last year. Dividends are expected to continue to grow at a rate of 4.7% 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).


 



  1. (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 outlines to distribute and service 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 $2.4 million dollars would be raised by selling 90,000 shares of common stock


· Plan B would involve issuing $1.2 million dollars in long-term bonds with an effective interest rate of 12.1% plus $1.2 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 firm’s capital structure.


Plan B has 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:



  1. Find the EBIT indifference level associated with the two financing plans.

  2. 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.

  3. Find the EBIT indifference level associated with the two financing plans


The EBIT indifference level associated with the two financing plans is $______.(Round to the nearest dollar.)



  1. Prepare a pro forma income statement for the EBIT level solve for in Pat a. that shows that EPS will be same regardless whether Plan A or B is chosen.


Complete the segment of the income statement for Plan A below: (Round income statement amounts to the nearest dollar except the EPS to the nearest cent.)


Stock Plan


EBIT $______________


Less: Interest Expense____________


Earnings Before Taxes $______________


Less: Taxes at 35%_____________________


Net Income $____________


Number of Common Shares_____________


EPS $___________________


 


Complete the segment of income statement for Plan B below. (Round income statement amounts to the nearest dollar except the EPS to the nearest cent)


Bond/Stock Plan


EBIT $______________


Less: Interest Expense____________


Earnings Before Taxes $______________


Less: Taxes at 35%_____________________


Net Income $____________


Number of Common Shares_____________


EPS $___________________


 


 


 



  1. (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 is interested in financing the startup company and two financing plan have been put forth the consideration:


The first (Plan A) is an all-common-equity capital structure. $2.5 million dollars would be raised by selling common stock at $20 per common share.


Plan B would involve the use of financial leverage. $1.3 million would be raised by selling bonds with an effective interest rate of 11.3%(per annum), and the remaining $ 1.2 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 34% tax rate is deemed appropriate for the analysis.



  1. Find the EBIT indifference level associated with the two financing plans.

  2. A detailed financial analysis of the firm’s prospects suggests that the long-term EBIT will be above $301,000 annually. Taking this into consideration, which plan will generate the higher EPS?

  3. Find the EBIT indifference level associated with the two financing plans.


The EBIT indifference level associated with the two financing plan is $____________(Round to the nearest dollar.)



  1. A detailed financial analysis of the firm’s prospects suggests that the long-term EBIT will be above $301,000 annually. Taking this into consideration, which plan will generate the highest EPS?


Complete the segment of the income statement for Plan A below: (Round income statement amounts to the nearest dollar except the EPS to the nearest cent.)


Stock Plan


EBIT $______________


Less: Interest Expense____________


Earnings Before Taxes $______________


Less: Taxes at 34%_____________________


Net Income $____________


Number of Common Shares_____________


EPS $___________________


 


The plan that will generate the higher EPS is Plan_____


 

Expert:  Linda_us replied 1 year ago.
Working on them. Will post the solution soon.
Expert:  Linda_us replied 1 year ago.
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Linda_us, Finance, Accounts & Homework Tutor
Category: Homework
Satisfied Customers: 7060
Experience: Post Graduate Diploma in Management (MBA)
Linda_us and 7 other Homework Specialists are ready to help you
Customer: replied 1 year ago.


Thanks Linda for your help. I will request you this week Wednesday or Thursday. I have finals in my finance class and would need help as well.


 


Thanks again.

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