What would the price be the recapitalization

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Reference no: EM131039133

Detailed Question: practice Questions for the final exam for Managerial Finance class,

I need the answer to be as the following

1- formulas

2- show work or steps

3- short (couple sentences or comment) for the results.to let me understand the different issues.

4- during the exam, I'm allowed to have two or three pages of formula supported with steps or anything they need except numbers, so please create formula sheet beside the work so I can have it with me in the exam.

5- some of the questions can be solved by financial calculator so please show its steps beside the original answer so I can follow by using my calculator.

Practice Questions for Final

1) You have just landed an internship in the CFO's office of Hawkesworth Inc. Your first task is to estimate the Year 1 cash flow for a project with the following data. What is the Year 1 cash flow?

Sales revenues	$13,000
Depreciation	$4,000
Other operating costs	$6,000
Tax rate	35.0%

2) DeVault Services recently hired you as a consultant to help with its capital budgeting process. The company is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's NPV?

Risk-adjusted WACC	10.0%
Net investment cost (depreciable basis)	$65,000
Straight-line deprec. rate	33.3333%
Sales revenues, each year	$65,500
Operating costs (excl. deprec.), each year	$25,000
Tax rate	35.0%

3) Harvey's Industrial Plumbing Supply's target capital structure consists of 40% debt and 60% equity. Its capital budget this year is forecast to be $650,000. It also wants to pay a dividend of $225,000. If the company follows the residual dividend policy, how much net income must it earn to meet its capital requirements, pay the dividend, and keep the capital structure in balance?

4) Larsen Films' is analyzing its cost structure. Its fixed operating costs are $470,000, its variable costs of $2.80 per unit produced, and its products sell for $4.00 per unit. What is the company's breakeven point, i.e., at what unit sales volume would income equal costs?

5) Hernandez Corporation expects to have the following data during the coming year. What is Hernandez's expected ROE?

Assets	$200,000	Interest rate	8%
D/A	65%	Tax rate	40%
EBIT	$25,000

6) Bailey and Sons has a levered beta of 1.10, its capital structure consists of 40% debt and 60% equity, and its tax rate is 40%. What would Bailey's beta be if it used no debt, i.e., what is its unlevered beta?

7) An all-equity firm with 200,000 shares outstanding, Antwerther Inc., has $2,000,000 of EBIT, which is expected to remain constant in the future. The company pays out all of its earnings, so earnings per share (EPS) equal dividends per shares (DPS). Its tax rate is 40%.

The company is considering issuing $5,000,000 of 10.0% bonds and using the proceeds to repurchase stock. The risk-free rate is 6.5%, the market risk premium is 5.0%, and the beta is currently 0.90, but the CFO believes beta would rise to 1.10 if the recapitalization occurs.

Assuming that the shares can be repurchased at the price that existed prior to the recapitalization, what would the price be following the recapitalization?

Shares outstanding	200,000	Interest rate	10%
EBIT	$2,000,000	Risk-free rate	6.5%
Dividend payout ratio	100%	Market risk premium	5.0%
Tax rate	40%	Beta - before recap	0.90
Bonds issued = stock repurchased	$5,000,000	Beta - after recap	1.10

8) Firms HD and LD are identical except for their level of debt and the interest rates they pay on debt-HD has more debt and pays a higher interest rate on that debt. Based on the data given below, what is the difference between the two firms' ROEs?

Applicable to Both Firms		Firm HD's Data		Firm LD's Data
Assets	$200	Debt ratio	50%	Debt ratio	30%
EBIT	$40	Interest rate	12%	Interest rate	10%
Tax rate	35%

Applicable to Both Firms		Firm HD's Data		Firm LD's Data
Assets	$200	Debt ratio	50%	Debt ratio	30%
EBIT	$40	Interest rate	12%	Interest rate	10%
Tax rate	35%

Reference no: EM131039133

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