Entries by Hannah Wangui

balance sheet

August 31, 2019 in /by

EP-BY-STEP SOLUTION TO: Question 16-4)Here is Establishment Industries’ market-value balance sheet (Figures in millions):         Net working capital$490   Debt$850   Long-term assets 3,360   Equity 3,000     Value of firm$3,850  $3,850    The debt is yielding 5.5%, and the cost of equity is 15.5%. The tax rate is 32%. Investors expect this level of debt to be permanent. a.What is Establishment’s WACC? (Do not round intermediate calculations. Enter […]

 

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New return on equity

August 31, 2019 in /by

Question 16-3)The common stock and debt of Northern Sludge are valued at $60 million and $40 million, respectively. Investors currently require a return of 16.7% on the common stock and 7.0% on the debt. If Northern Sludge issues an additional $18 million of common stock and uses this money to retire debt, what happens to […]

 

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shares.

August 31, 2019 in /by

Question 16-2)River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $340,000 of debt at an interest rate of 12% and use the proceeds to repurchase 34,000 shares at $10 per share. Profits before interest are expected to be $134,000. a.What is the ratio of price to expected earnings for River Cruises before […]

 

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Current Data

August 31, 2019 in /by

Question 16-1)River Cruises is all-equity-financed.   Current Data      Number of shares 100,000         Price per share$10         Market value of shares$1,000,000        State of the Economy  Slump NormalBoom  Profits before interest$75,000  125,000  175,000    Suppose it now issues $250,000 of debt at an interest rate of 10% and uses the proceeds to repurchase 25,000 shares. Assume that the firm pays no taxes and that debt finance has no impact on firm […]

 

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