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You have developed the following pro forma income statement for your corporation: Sales $ 45,757,000 Variable costs (22,864,000) Revenue before fixed costs 22,893,000 Fixed costs (9,206,000) EBIT 13,687,000 Interest expense (1,307,000) Earnings before taxes 12,380,000 Taxes (50%) (6,190,000) Net Income 6,190,000 It represents the most recent year’s operations, which ended yesterday. Your supervisor in the controller’s office has just handed you a memorandum asking for written responses to the following questions: A. If sales should increase by 25%, by what percent would earnings before interest and taxes and net income increase? B. If sales should increase by 25%, by what percent would earnings before interest and taxes and net income decrease? C. If the firm were to reduce its reliance on debt financing such that interest expense were cut in half, how would this affect your answers to parts A and B?
A company is expected to pay their first annual dividend 2 years from now. That payment will be $1.50 a share. Starting in Year 3, the company will increase the dividend by 5% per year. The required return from common shareholders is 15%. What is the..
A proximity sensor attached to the tip of an endoscope could reduce risks during eye surgery by alerting the surgeon to the location of critical retinal tissue. A certain eye surgeon expects that by using this technology, he will avoid lawsuits of $0..
You recently purchased a stock that is expected to earn 30 percent in a booming economy, 9 percent in a normal economy, and lose 33 percent in a recessionary economy. There is a 5 percent probability of a boom and a 75 percent chance of a normal econ..
The United States purchased Alaska in 1867 for $7.2M (where M stands for million). Assume that federal tax revenue from the state of Alaska (net federal expenditures) is $55.1M in 2012 and that tax revenue started in 1868 and has steadily increased b..
Aberdeen Company has the following capital structure. The risk-free rate is 5% and the expected return on the market is 12%. The tax rate of Aberdeen is 32%. Find the WACC of Aberdeen.
Buy car for $35,000. If bank will lend $30,000 (10% discount rate), what will annual payments be? Make 1st payment at end of year and make 5th and final payment at end of 5th year.
You are paying an effective annual rate of 15.40 percent on your credit card. The interest is compounded monthly. What is the annual percentage rate on your account?
What if the company goes out of business in fifteen years and thus pays an annual dividend of $2.10 for only those fifteen years? What is the present value of a share for this company if we want a 10% return on the stock?
Miller Mfg. is analyzing a proposed project. The company expects to sell 12,000 units, plus or minus 3 percent. The expected variable cost per unit is $8.00 and the expected fixed cost is $35,000. The fixed and variable cost estimates are considered ..
A SPREAD is an investment strategy that involves the simultaneously buying and selling equal number of options on the same underlying security but with different strike prices
Imagine that you are creating a marketing plan for a company that will sell motor scooters. As you consider the marketing program, what types of strategy should you consider including in the plan? Propose one specific example of each type of strategy..
the market rate of interest will sell for a discount and that a vanilla bond which has a coupon rate above the market rate of interest will see for a premium. What kind of bond or loan will sell at its par value regardless of what happens to the m..
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