FIN370 Myfinancelab Week-4 2015 (Score: 100%)
Query-1 Templeton Prolonged Care Services Inc is contemplating the acquisition of a sequence of cemeteries for $400 million. for the reason that main asset of this enterprise is actual property, Templeton's administration has decided that they are going to have the ability to borrow the vast majority of the cash wanted to purchase the enterprise. The present house owners don't have any debt financing however Templeton plans to borrow $300 million and make investments solely $100 million in fairness within the acquisition. What weights ought to Templeton use in computing the WACC for this acquisition? Spherical to 1 decimal place. The suitable weight of debt Wd is The suitable weight of frequent fairness Wcs is Query-2 2). Compute the price of capital for the agency for the next: a). A bond that has a $1,000 par worth (face worth) and a contract or coupon rate of interest of 11.9%. Curiosity funds are $59.50 and are paid semiannually. The bonds have a present market worth of $1,129 and can mature in 10 years. The shape's marginal tax charge is 34% . aa). The after-tax value of debt is _% (spherical to 2 decimals locations) b). A brand new frequent inventory challenge that paid a $1.82 dividend final yr. The agency's dividends are anticipated to proceed to develop at 7.2% per yr eternally. The value of the agency's frequent inventory is now $27.97. bb). The price of frequent fairness is _% (spherical to 2 decimal locations) c). A most popular inventory that sells for $136 pays a dividend of 9.1 % and has a $100 par worth. cc). The price of the popular inventory is _% (spherical to 2 decimal locations) d). A bond promoting to yield 11.1% the place the shape's tax charge is 34%. dd). After tax value of debt is _% (spherical to 2 decimal locations) Query-Three (Price of Most well-liked Inventory) The popular inventory of Gator Industries sells for $35.49 and pays $2.75 per yr in dividends. What's the price of most popular inventory financing? If Gator have been to challenge 550,000 extra most popular shares identical to those it presently has excellent, it may promote them for $35.49 a share however would incur flotation prices of $Three.12 per share. what are the flotation prices for issuing the popular shares and how ought to this value be integrated into the NPV of the undertaking being financed? Query-Four (Price of Debt) The Walgren Company is considering a brand new funding to be finance utilizing one-third from debt. The agency may promote new $1,000 par worth bonds with a 15-year maturity at a worth of $949 that carry a coupon rate of interest is 12.7 % that's paid semiannually, and the bonds would mature in fifteen years. If the corporate is in a 34% tax bracket, what's the after-tax value of capital to Walgren for bonds? Query-5 (Price of Debt) Gillian Stationery Company wants to lift $600,000 to enhance its manufacturing plant. It has determined to challenge a $1,000 par worth bond with a coupon charge of Eight% with curiosity paid semiannually and a 10-year maturity. If the traders require a 10% charge of return: a. Compute the market worth of the bonds. b. What number of bonds will the agency should challenge to obtain the wanted funds? c. What's the firm’s after-tax value of debt if the firm’s tax charge is 34 %? Query-6 (Weighted common value of capital) As a marketing consultant to GBH Skiwear, you have been requested to compute the suitable low cost charge to make use of within the analysis of the acquisition of a brand new warehouse facility. You could have decided the market worth of the firm’s present capital construction (which the agency considers to be its goal mixture of financing sources) as follows: Supply of Capital Market Worth Bonds $500,000 Most well-liked inventory $110,000 Frequent inventory $420,000 To finance the acquisition, GBH will promote 20-year bonds with a $1,000 par worth paying 7.7% per yr on the market worth of $954. Most well-liked inventory paying a $2.45 dividend will be offered for $34.32. Frequent inventory for GBH is presently promoting for $50.04 per share. The agency paid a $Three.94 dividend final yr and expects dividends to proceed rising at a charge of 34.1% per yr into the indefinite future. The firm’s marginal tax charge is 34%. What low cost charge must you use to guage the warehouse undertaking? Query-7 Lowe’s Corporations, Inc. (LOW) and its subsidiaries function as a house enchancment retailer in the USA and Canada. As of February 1, 2008, it operated 1,534 shops in 50 states and Canada. The company’s stability sheet for February 1, 2008, included the next sources of financing: In 1000's of Monetary Construction Liabilities Present liabilities Accounts payable ……………………….. $ Four,137,000 Quick-term/present debt …………………. 1,104,000 Different present liabilities …………………. 2,510,000 Complete present liabilities …………………. $ 7,751,000 Lengthy-term debt ………………………… 5,576,000 Different long-term liabilities ……………… 670,000 Lengthy-term liabilities ……………………. $ 6,246,000 Stockholder fairness …………………….. $16,098,000 Complete …………………………………… $30,095,000 a. Calculate the values of Lowe’s debt ratio and interest-bearing debt ratio. b. If the market worth of Lowe’s frequent fairness is $35.86 billion and Lowe’s has no extra money, what's the firm’s debt-to-enterprise-value ratio? Query-Eight (Computing curiosity tax financial savings) Dharma Provide has earnings earlier than curiosity and taxes (EBIT) of $527,000, curiosity bills of $307,000 and faces a company tax charge of 36 %. a. What's Dharma Provide's Internet Revenue? b. what would dharmas internet revenue be if it didnt have any debt? c. what are the companies curiosity tax financial savings? Query-9 You could have developed the next professional forma revenue assertion to your company. It represents the newest years operations, which ended yesterday. Your supervisor within the controllers workplace has simply handed you a memorandum asking for written responses to the next questions: a. If Gross sales Ought to enhance by 30%, by what % would earnings earlier than curiosity and taxes and internet revenue enhance? b. If gross sales ought to lower by 30% by what % would earnings earlier than curiosity and taxes and internet revenue lower? c. If the agency have been to cut back its reliance on debt financing such that curiosity expense have been lower in half, how would this have an effect on your solutions to elements A and B? Query-10 (Capital Asset Pricing Mannequin) CSB, Inc has a beta of zero.765. If the anticipated market return is 10.5 % and the danger free charge is Three.5 %, what's the applicable anticipated return of CSB(utilizing the CAPM)? Query-11 (Capital Asset Pricing Mannequin) The anticipated return for the overall market is 11.zero %, and the danger premium out there is 6.Three%. Tasaco, LBM, and Exxos have betas of zero.849, zero.621 and zero.578, respectively. What are the corresponding required charges of return for the three securities? Query-12 James Fromholtz is contemplating whether or not to put money into a newly shaped funding fund. The fund’s funding goal is to accumulate residence mortgage securities at what it hopes shall be cut price costs. The fund sponsor has urged to James that the fund’s efficiency will hinge on how the nationwide financial system performs within the coming yr. Particularly, he urged the next potential outcomes: a. Based mostly on these potential outcomes, what's your estimate of the anticipated charge of return from this funding alternative? b. Would you be fascinated by making such an funding? Word that you simply lose all of your cash in a single yr if the financial system collapses into the worst state otherwise you double your cash if the financial system enters right into a speedy enlargement. c. Would you be fascinated by making such an funding? NOTE: IF YOUR DATA IS DIFFERENT, CHANGE DATA IN EXCEL. ANSWER WILL BE AUTOMATICALLY UPDATED.