Calculate the new value of the operations

Assignment Help Financial Management
Reference no: EM13933580

Lincoln Funeral Home has a capital structure consisting of 20% debt and 80% equity. Lincoln’s debt currently has an 8% yield to maturity. The risk free rate is 5% and the market risk premium is 7%. Using CAPM, Lincoln estimates that the cost of equity is currently 12.5%. The company has a 40% tax rate. The firm pays out all of its earnings as dividends. Lincoln currently has $30 million in debt and its stock price is $60 per share with 2 million shares outstanding. The free cash flow last year was $9 million. The CEO is considering changing the capital structure to 40% debt and 60% equity. If the company went ahead with this change their new cost of borrowing would be 9.5%. a) What would the company’s new WACC be if it adopts the proposed changes to the capital structure? Should the company go ahead with the new plan? b) Assuming that they go ahead with the plan, calculate the new value of the operations. How much has it changed by?

Reference no: EM13933580

Questions Cloud

Project plan development for a project : Project Plan Development for a Project of Your Choice Select a project (actual, completed, to be completed or under planning - this may include a project you are actually working on or one you are thinking of implementing). Many thousands of examp..
Actual direct monetary influence on the markets : Does a change in the federal funds rate really have an actual direct monetary influence on the markets or is it nothing more than a perception? Explain.
Find the horizontal and vertical components of thrust : Find the horizontal and vertical components of thrust which must be produced in order to hold the vehicle in the position shown. The vehicle itself is neutrally buoyant.
Find the average time to the first failure : find The probability that it is at least two hours until the first failure occurs, The probability that it is no more than six hours until the first failure occurs and The average time to the first failure.
Calculate the new value of the operations : Lincoln Funeral Home has a capital structure consisting of 20% debt and 80% equity. Lincoln’s debt currently has an 8% yield to maturity. The risk free rate is 5% and the market risk premium is 7%. Should the company go ahead with the new plan? b) As..
Prepare a schedule to determine the amount of cost : Prepare a schedule to determine the amount of cost of goods sold.
Agreement to share profits in partnership : Where there is no agreement to share profits in a partnership, but one partner invested twice as much capital in the partnership as the other over the course of the year, how are profits to be split?
Opportunity cost of an additional barrel of ethanol : If Australia increases its production of ethanol from 40 barrels per day to 54 barrels per day, what is the opportunity cost of an additional barrel of ethanol? If ethanol production increases from 54 barrels to 64 barrels, what happens to the opp..
Providing affordable accommodation : Abbott Housing Trust was formed in 1933 by Margaret Hill, CBE, whose primary objective was to "convert houses for the occupation of more than one family" and to aid ‘old aged pensioners'.

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd