Click On The Link
Below to Purchase A+ Graded Material
Instant Download
Directions: Answer the following questions
on a separate document. Explain how you reached the answer or show your work if
a mathematical calculation is needed, or both. Submit your assignment using the
assignment link in the course shell. This homework assignment is worth 100
points.
Use the following information for
Questions 1 through 3:
Boehm
Corporation has had stable earnings growth of 8% a year for the past 10 years
and in 2013 Boehm paid dividends of $2.6 million on net income of $9.8 million.
However, in 2014 earnings are expected to jump to $12.6 million, and Boehm
plans to invest $7.3 million in a plant expansion. This one-time unusual
earnings growth won’t be maintained, though, and after 2014 Boehm will return
to its previous 8% earnings growth rate. Its target debt ratio is 35%.
Calculate
Boehm’s total dividends for 2014 under each of the following policies:
1. Its
2014 dividend payment is set to force dividends to grow at the long-run growth
rate in earnings.
2. It
continues the 2013 dividend payout ratio.
3. It
uses a pure residual policy with all distributions in the form of dividends
(35% of the $7.3 million investment is financed with debt).
4. It
employs a regular-dividend-plus-extras policy, with the regular dividend being
based on the long-run growth rate and the extra dividend being set according to
the residual policy.
Use the following information for
Questions 5 and 6:
Schweser
Satellites Inc. produces satellite earth stations that sell for $100,000 each.
The firm’s fixed costs, F, are $2 million, 50 earth stations are produced and
sold each year, profits total $500,000, and the firm’s assets (all equity
financed) are $5 million. The firm estimates that it can change its production
process, adding $4 million to investment and $500,000 to fixed operating costs.
This change will (1) reduce variable costs per unit by $10,000 and (2) increase
output by 20 units, but (3) the sales price on all units will have to be
lowered to $95,000 to permit sales of the additional output. The firm has tax
loss carry forwards that render its tax rate zero, its cost of equity is 16%,
and it uses no debt.
5. What
is the incremental profit? To get a rough idea of the project’s profitability,
what is the project’s expected rate of return for the next year (defined as the
incremental profit divided by the investment)? Should the firm make the
investment? Why or why not?
6. Would
the firm’s break-even point increase or decrease if it made the change?
Use the
following information for Questions 7 and 8:
Suppose
you are provided the following balance sheet information for two firms, Firm A
and Firm B (in thousands of dollars).
Firm A Firm B
Current
assets $150,000 $120,000
Fixed
assets (net) 150,000 180,000
Total
assets $300,000 $300,000
Current
liabilities $20,000 $80,000
Long-term
debt 80,000 20,000
Common
stock 100,000 100,000
Retained
earnings 100,000 100,000
Total
liabilities and equity $300,000 $300,000
Earnings
before interest and taxes for both firms are $30 million, and the effective
federal plus-state tax rate is 35%.
7. What
is the return on equity for each firm if the interest rate on current
liabilities is12% and the rate on long-term debt is 15%?
8.
Assume that the short-term rate rises to 20%, that the rate on new long-term
debt rises to 16%, and that the rate on existing long-term debt remains
unchanged. What would be the return on equity for Firm A and Firm B under these
conditions?
9. In
1983 the Japanese yen-U.S. dollar exchange rate was 250 yen per dollar, and the
dollar cost of a compact Japanese-manufactured car was $10,000. Suppose that
now the exchange rate is 120 yen per dollar. Assume there has been no inflation
in the yen cost of an automobile so that all price changes are due to exchange
rate changes. What would the dollar price of the car be now, assuming the car’s
price changes only with exchange rates?
No comments:
Post a Comment