User Account

All Pages

Gauge of your ability to apply your tools

Assignment Help Finance Basics
Reference no: EM1379976

Question 1.  This question should be a good gauge of your ability to apply your tools and analytic skills acquired thus far on the topic of valuation. **Important to note the firm goes into financial distress in this case and defaults on its payment.

 1.      (a) (i) You have the following information about BreadfruitHead Ltd.(BH):

Free Cash Flow projections ($m) of the unleveraged firm are as follows:

2006    2007     2008      2009 

 

 80         95         110       120

 

The cost of equity is 15% and the tax rate is 30%, both per annum. Values for 2010  onwards are estimated to be the same as for 2009. BH is considering adding  permanent debt of $125 at a 10% annual rate of interest. It was also estimated the probability of default was 16%  and if there was default it would affect the entire debt of the firm. What are the unleveraged and the leveraged value of the firm?

(b) (ii) If the tax rate was 20% per annum, and if  after 2009 there is growth in all values of 2% per annum what would be the unleveraged and leveraged value of the firm? Why is it different from (i) above?  

This question should be a good gauge of your ability to apply your tools and analytic skills acquired thus far on the topic of Capital Structures.

Question 2)   (a) The Board  of  SIENA Inc. have hired you to review the capital structure policy of the company. You have collected the following information:

PV of the Free Cash Flows (FCFs) for the next 5 years = $55m.

The FCF in year 5 = $21m    Expected growth for Year 6 onwards = 2.5%

The unleveraged cost of equity = 17%          Corporate tax rate = 35%

Value of Debt (constant) = $60m

What is the Value of SIENA? (4%)

(b)  While you are completing the valuation above you are interviewing a number of Board members. Some complain that the capital structure is sub optimal because management has been setting capital structure by using a Pecking Order approach. Others complain that there is not enough debt in the capital structure and management is wasting the excess cash on frivolous projects. You decide to do a short memo to the Board on the implications of the Tradeoff, Pecking Order & Agency Models. Describe each and indicate the implications of each to Capital Structure policy. (5%)

Reference no: EM1379976

Questions Cloud

What recourse would sponsor have to avoid disqualification : Assume change is made in 2006 for a select group of participants also; as a result, plan fails to satisfy applicable discrimination tests for 2006. What recourse would sponsor have in order to avoid disqualification.
Support ethics and ethical behaviour at work : Can team leaders or managers do more to harness the power of team norms to support ethics and ethical behaviour at work
Creating a grading program : Make a grading program that helps to determine letter grade based on your exam score. For example, when you put in exam score of eighty,
How does a firm headquartered in one country : abuse in many places across board also throughout world. How does a firm, headquartered in one country, address this issue of underutilized resource while still maintaining sensitivity to local culture that might not be empathetic to it.
Gauge of your ability to apply your tools : This question should be a good gauge of your ability to apply your tools and analytic skills acquired thus far on the topic of valuation. **Important to note the firm goes into financial distress in this case and defaults on its payment.
Write about an ethical dilemma or situation you have read : write about an ethical dilemma or situation you have read around in a news article or in a new story on television. You may likewise write about people you think are the most ethical people in your life
In the hr field there is frequently discussion of hr : In the HR field there is frequently discussion of HR not having a seat at the C-Suite (executive leadership) table. Do you think the role of HR professionals should be strategic
Even between experienced hr professionals organizational : Even between experienced HR professionals organizational development is an ambiguous term. What is your understanding of the term in relationship to HRM
Creating a grade average program : Create a grade average program that will produce the numerical grade average of test scores input by a user.

Reviews

Write a Review

Finance Basics Questions & Answers

  Use of mm''s proposition

Use MM's proposition 2 to calculate the new cost of equity.

  Calculate npv of the campaign

Piano Tuners Unlimited is planning a promotional campaign at cost $6,000,000. The resultant after tax cash flows would be $500,000 each year in the absence of debt, and appropriate discount rate for an unlevered PTU would be 7.5 percent.

  Simple interest and compound interest

Illustrate out the difference between simple interest and compound interest? What are some examples of where might each be employed?

  Explain the companies cost of capital

Describe a company's cost of capital and how it is calculated. What is marginal cost of capital and how does it differ from weighted average cost of capital?

  Computing future value of annuity over time

If you can earn eight percent per year on your retirement account, how much will you have to save each year if you want to retire in 20 years with $1 million?

  Computation of contribution margin and break-even point

Computation of contribution margin and break-even point and target operating income and What will be the operating income

  Prepare analyses to help in making their decisions

Using the data provided by the controller, prepare analyses to help Robert and Jane in making their decisions. (Hint: Prepare cost calculations for both product lines using ABC to see whether there is any significant difference in their unit costs). ..

  Risk is a major concern of almost all investors

Risk is a major concern of almost all investors. When shareholders invest their money in a firm, they expect managers to take risks with those funds.

  Compute the percentage increase in profit

RealTimeService offers computer consulting, training and repair services. For the most recent fiscal year, profit was $230,000 as follows.

  Identifying importance of off balance sheet financing

Identify importance of off balance sheet financing with respect to tax & accounting issues? How does EBIT or EPS analysis allow financial managers to find the capital structure of the firm?

  Determine the annual amount of discount

The initial proceeds per bond, the size of the issue, the initial maturity of bond, and the years remaining to maturity are shown in the following table for number of bonds.

  Annuity payments from insurance policy

Sarah is age 73 and has a great deal of difficulty living independently, as she suffers from severe arthritis.How much income must Sarah report if she elects the annuity? How much income would Sarah have to report if her nursing home bills amounted..

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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