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Milano Pizza Club owns three identical restaurants popular for their specialty pizzas. Each restaurant has a debt–equity ratio of 35 percent and makes interest payments of $60,000 at the end of each year. The cost of the firm’s levered equity is 16 percent. Each store estimates that annual sales will be $1.68 million; annual cost of goods sold will be $860,000; and annual general and administrative costs will be $595,000. These cash flows are expected to remain the same forever. The corporate tax rate is 40 percent. Use the flow to equity approach to determine the value of the company’s equity. What is the total value of the company?
Large Industries bonds sell for $1,062.92. The bond life is 10 years, and the yield to maturity is 7.1%. What must be the coupon rate on the bonds? Assume coupons are paid once a year and the face value is $1,000.
Describe in detail how to calculate the present value and the future value of a series of cash flows. What is APR? What is EAR? Are they the same thing? Describe in detail the differences and similarities in calculating the present value and future v..
A stock has a beta of 1.24, the expected return on the market is 11.8 percent, and the risk-free rate is 4.55 percent. What must the expected return on this stock be?
You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $130 initially, and then $175 per year in maintenance costs. Either machine must be replaced at the end of its life wit..
Stock Y has a beta of 1.4 and an expected return of 15.3 percent. Stock Z has a beta of .6 and an expected return of 8.3 percent. If the risk-free rate is 5.4 percent and the market risk premium is 6.4 percent, the reward-to-risk ratios for stocks Y ..
Which one of the following best matches the primary goal of financial management?
Outstanding debt of Home Depot trades with a yield to maturity of 8%. The tax rate of Home Depot is 35%. What is the effective cost of debt of Home Depot?
Charlie Stone wants to retire in 35 years(he is currently 22) and be able to withdraw $250,000 per year for 15 years. Charlie wants to receive the first payment at the end of the 35th year. Using annual interest rate of 10%, how much should Charlie d..
Zipcar is a highly successful new company specializing in a brand-new model for automobile rental services, allowing their customers long-term and flexible access to shared vehicles on a daily or hourly basis. Zipcar's innovative model allows those w..
Suppose you plan to send your daughter to college in three years. You expect her to earn two-thirds of her tuition payment in scholarship money, so you estimate that your payments will be $10,000 a year for four years. To estimate whether you have se..
For 2012, the income statement of Precious Metals Processing reported net sales of $17,300, EBIT of $3,450, taxable income of $2,770 and net income of $1,830. The profit margin and the dividend payout ratio are held constant. Net working capital and ..
Total sources of funds are calculated as:
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