Finance Answers

Analyze the approaches to capital structure decisions and determine which theory is the most applicable across the widest number of scenarios. Explain your rationale.

is us treasury tax refund the same as federal tax refund?

For the next fiscal year, you forecast net income of $50,000 and ending assests of $500,000. Your firm's payout ratio is 10%. Your beginning stockholders equity is $300,000 and your beginning total liabilities are $120,000. Your non-debt liabilites such as accounts payable are forecasted to increase by $10,000. What is you net new financing needed for next year?

Wen Seng operates an ice cream shop. He is trying to decide whether to expand his business to include ice cream cakes. He will need some additional space that will cost him $7,200 per year at the end of each year and some additional equipment that will cost $10,000 up front. The ice cream cakes will provide an extra income of $10,000 per year at the end of each year. The business is expected to last 20 years. The discount rate (or interest rate) for Wen Seng's new business is 10%. What is the Net Present Value of the ice cream cake project project? (Assume there are no taxes.)

Do you do Finance? Im doing level 6 Fetac (Ireland) and have an assignment due in 4 weeks.

1. Firm L has debt with a market value of $200,000 and a yield of 9%. The firm's equity has a
market value of $300,000, its earnings are growing at a rate of 5%, and its tax rate is 40%. A
similar firm with no debt has a cost of equity of 12%. Under the MM extension with growth, what
is Firm L's cost of equity?
a. 11.4%
b. 12.0%
c. 12.6%
d. 13.3%
e. 14.0%
2. Your firm has debt worth $200,000, with a yield of 9%, and equity worth $300,000. It is growing
at a 5% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 12%.
Under the MM extension with growth, what is the value of your firm’s tax shield, i.e., how much
value does the use of debt add?
a. $92,571
b. $102,857
c. $113,143
d. $124,457
e. $136,903
3. Your firm has debt worth $200,000, with a yield of 9%, and equity worth $300,000. It is growing at a
5% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 12%. What is
the value of the firm according to MM with corporate taxes?
a. $475,875
b. $528,750
c. $587,500
d. $646,250
e. $710,875
4. Gomez computer systems has an EBIT of $200,000, a growth rate of 6%, and its tax rate is 40%.
In order to support growth, Gomez must reinvest 20% of its EBIT in net operating assets. Gomez
has $300,000 in 8% debt outstanding, and a similar company with no debt has a cost of equity of
11%.
According to the MM extension with growth, what is the value of Gomez’s tax shield?
a. $156,385
b. $164,616
c. $173,280
d. $182,400
e. $192,000
5. Trumbull, Inc., has total value (debt plus equity) of $500 million and $200 million face value of 1-
year zero coupon debt. The volatility ( ) of Trumbull’s total value is 0.60, and the risk-free rate is
5%. Assume that N(d1) = 0.9720 and N(d2) = 0.9050.
What is the value (in millions) of Trumbull’s equity if it is viewed as an option?
a. $228.77
b. $254.19
c. $282.43
d. $313.81
e. $345.19

Two constant growth stocks are in equilibrium, have the same price, and have the same required rate of return. Which of the following statements is CORRECT?



The two stocks must have the same dividend per share.








If one stock has a higher dividend yield, it must also have a lower dividend growth rate.








If one stock has a higher dividend yield, it must also have a higher dividend growth rate.








The two stocks must have the same dividend growth rate.








The two stocks must have the same dividend yield