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Suppose that TV Industries, Inc. currently has the balance sheet shown as follows, and that sales for the year just ended were $5 million. The firm also has a profit margin of 15 percent, a retention ratio of 25 percent, and expects sales of $5.5 million next year. If all assets and current liabilities are expected to increase with sales, what amount of additional funds will the company need from external sources to fund the expected growth?
Assets and Liabilites at 3 million
Discuss the tax consequences of contributing cash, property, and/or services to the new entity.
How is the income statement related to the balance sheet? Explain how the DuPont system of analysis breaks down return on assets and how it breaks down the return on stockholders’ equity. Rapid corporate growth in sales and profits can cause financin..
When returns from a project can be assumed to be normally distributed, such as those shown in Figure 13-6 (represented by a symmetrical, bell-shaped curve), the areas under the curve can be determined from statistical tables based on standard deviati..
What type of signals do debt and equity provide about the information asymmetries between firm insiders and investors?
Three-year Treasury securities currently yield 6%, while 4-year Treasury securities currently yield 6.5%. Assume that the expectations theory holds. What does the market believe the rate will be on 1-year Treasury securities three years from now?
Suppose that put options on a stock with strike prices $45 and $55 cost $2 and $9, respectively. Use these options to create a bear spread. At what stock price at maturity will you break even? In other words, at what stock price, will you make $0 pro..
Harrison Co. issued 13-year bonds one year ago at a coupon rate of 7 percent. The bonds make semiannual payments. If the YTM on these bonds is 5.3 percent, what is the current dollar price assuming a $1,000 par value?
If the firm can earn 10% on short-terms investments, what, if any, annual savings would result form maintaining the lower average account balance?
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm currently has four divisions, A through D, with average betas for each division of 0.8, 1.0, 1.5, and 1.7, respectively. the current cost of equity (based o..
A firm has decided to renew part of its production process by acquiring a new and more efficient machine at a cost of $24 million which can be depreciated on a linear basis over 4 years. At the end of the project, the resale market value of the machi..
Company A is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $219,000, a 4-year expected life, and after-tax cash flows (labour savings and depreciation) of ..
Compare the after-tax annual cost of the two machines and decide whether Machine A should be retained or replaced by Machine B.
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