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Gluten-Free Baked Goods has created a niche for itself by creating and marketing a line of gluten-free cakes and desserts. The company has annual sales of $5 million. It has grown slowly but steadily; the owners have avoided all debt and have relied on internal funds to sustain growth. The firm has no debt and has generated an after-tax operating income of $400,000. The firm purchased its supplies of sugar, gluten-free flour, specialty yeasts, and other raw ingredients from a number of suppliers. Even though the owners were offered 2/10 Net/30 terms by their suppliers, they paid cash on delivery. One of the owners stated the rationale for this as follows: “We hate to owe anybody anything. Once we have the supplies and if we like the quality, we like to pay when we get the delivery. After all, our customers pay us right when they buy our product!” The cost of goods sold were 80% of the sales. The owners were recently approached by another specialty food manufacturer who wanted to buy the business for $4 million. The interested firm explained that it had simply taken the perpetuity value of the most recent after-tax operating income using a cost of capital of 12% to arrive at the value. (The analysis included a long-term growth potential of 2% per year.) The estimated value was $400,000/(0.12 − 0.02). The owners generally agreed with all the assumptions but were still a bit unsure about the value. They felt that the offer failed to reflect the conservative policies that they have been following. Do you agree with the owners? What would be your estimate of the extra value that should be offered for Gluten-Free Baked Goods?
A bank is planning to make a loan of $5,000,000 to a firm in the steel industry. It expects to charge a servicing fee of 50 basis points. The loan has a maturity of 8 years with a duration of 7.5 years. The cost of funds (the RAROC benchmark) for the..
We are examining a new project. We expect to sell 5,300 units per year at $67 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $67 × 5,300 = $355,100. The relevant discount rate is 16 perce..
Please calculation the Present value and cash payment reduction. Instruction: Please show the clear calculation and interpretation. Homework question 3: Company A sells machinery to Company B. Company B agrees to pay Company A $200,000 at the end of ..
Victor has a $10,000 cash-value policy purchased 15 years ago when he was 25 years old. The policy will be paid at age 65. Find the cash value of insurance. Jack earned 6.5% last year on a $7500 investment in taxable bonds. If the applicable tax rate..
Write down the fitted model and obtain a time plot of the smoothed estimate of xt. - Also, show the time plot of filtered response residuals of the fitted state-space model.
A $1,000 par value bond with five years left to maturity pays an interest payment semi-annually with a 6 percent coupon rate and is priced to have a 5 percent yield to maturity. If interest rates surprisingly increase by 0.5 percent, by how much woul..
Sadik Industries must install $300 of new machinery in its Texas plant. It can either lease the equipment or obtain a bank loan for 100% of the required amount and buy the equipment. What would be the company's debt ratio, in percentages, if it purch..
Maggie's Muffins, Inc., generated $2,000,000 in sales during 2013, and its year-end total assets were $1,500,000. Also, at year-end 2013, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and ..
According the National Retail Federation and Center for Retailing Education at the University of Florida, the four main sources of inventory shrinkage are employee theft, shoplifting, administrative error, and vendor fraud. The estimated annual dolla..
some economists advised Argentina to dollarize, that is, to eliminate the peso and use the U.S. dollar as its currency. - Discuss how dollarization might have changed.
Suppose that after graduation that Sarah must pay back $70,000 in student loans and that she has 15 years to do so. She has a direct subsidized undergraduate loan with an interest rate of 4.29%, compounded monthly and this interest starts to accrue t..
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.94 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be w..
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