What is the value of fun toys equity

Assignment Help Financial Management
Reference no: EM13725286

Fun Toy Corporation estimates that there is 25% chance of a recession economy next year, a 50% chance of a normal economy next year, and a 25% chance of a boom economy next year. The corporation will exist until the end of next year and then it will cease to exist. Spartan has $80 of debt that must be repaid next year. Assume a 0% discount rate for all cash flows (in other words, there is no discounting). Fun Toy has a low risk project that yields a cash flow of $70 in a recession, $100 in a normal economy, and $130 in a boom. If Fun Toy chooses this low risk project: what is the value of Fun Toy's debt? What is the value of Fun Toy's equity? Fun Toy has a high risk project that yields a cash flow of $30 in a recession, $100 in a normal economy, and $160 in a boom. If Fun Toy chooses this high risk project: what is the value of Fun Toy's debt? What is the value of Fun Toy's equity? Which project will Fun Toy choose? Given your answers to (a) and (b), when Fun Toy sells the bonds would it like to include a covenant that would prohibit it from taking the high-risk project? Explain your answer.

Reference no: EM13725286

Questions Cloud

Generates after-tax cash flows : An investment of $83 generates after-tax cash flows of $38.00 in Year 1, $70.00 in Year 2, and $133.00 in Year 3. The required rate of return is 20 percent. The net present value is
Determine end of coming year level of accounts receivable : In the past a company's collection period has been 45 days. Using the percentage of sales method, determine the end of coming year level of accounts receivable that accompany the following sales levels if accounts receive able were a spontaneous asse..
Discusses era of reform and its impact on america commitment : Discusses the era of reform and its impact on America's commitment to liberty. Did this reform movement increase or decrease the nation's commitment to, and practice of liberty.
Purpose of a bia : Question 1: What is the goal and purpose of a BIA? Question 2: Why is a business impact analysis (BIA) an important first step in defining a business continuity plan (BCP)?
What is the value of fun toys equity : Fun Toy Corporation estimates that there is 25% chance of a recession economy next year, a 50% chance of a normal economy next year, and a 25% chance of a boom economy next year. The corporation will exist until the end of next year and then it will ..
Statements about the payback method : Which ONE of the following statements about the payback method is true? The payback method is consistent with the goal of shareholder wealth maximization. The payback method represents the number of years it takes a project to recover its initial inv..
Find the project schedule with the lowest total cost : Overhead project costs  (Indirect costs) are $70 per day. Please crash the project and find the project schedule with the lowest total cost (indirect cost + direct cost)
Evaluating a project-what is the npv of the project : Monroe, Inc., is evaluating a project. The company uses a 13.8 percent discount rate for this project. Cost and cash flows are shown in the table. What is the NPV of the project?
Apply the tools and techniques in research : Project objective:1.Apply the tools and techniques in research and analysis required to evaluate computer and information science products.2.Describe how pipelining and superscalar processing improve the speed at which a computer program is executed...

Reviews

Write a Review

Financial Management Questions & Answers

  How much will our new proposal cost the taxpayers

Our new project proposal will require roughly 500 hours of total staff time and $1,000 in materials. Our total staff budget is $520,000 for 10 full time equivalents (FTE). How much will our new proposal cost the taxpayers?

  Black water corp just issued zero-coupon bonds

Black water Corp just issued zero-coupon bonds with a par value of $1,000. The bond has a maturity of 25 years and a yield to maturity of 8.29%, compounded semi-annually. What is the current price of the bond?

  Calculate the degree of operating leverage

Deci-Bell, Inc. is producing new headphones. Deci-Bell Inc. has a base level of sales of 312,464 units. Sales price per unit is $148.61 and variable cost per unit is $61.52. Total annual operating fixed costs are $6,294,441.

  Find the holding period return

The prices for the white swan corporation for the first quarter of the last year are given below. Find the holding period return (percentage return) for March.

  Balanced scorecard performance analysis

Explain the potential value of a BSC to Anthony's Orchard. Describe specific ways that the introduction of a BSC can contribute to this organisation - Balanced Scorecard Performance Analysis

  What was the funds return and what was investors return

The Global Growth Fund is a load fund with a 6 percent front load fee. It started the year with a Net Asset Value (NAV) of $16.50. During the year the fund distributed $1.05, and at the end of the year its NAV was $17.95. What was the fund's return, ..

  What is the cost of common equity

How can you use the cost of common equity found above under (a) to compute the cost of retained earnings? Assuming the company is privately held, would you expect them to rely more heavily on equity or retained earnings? Explain your rationale.

  Starting salary as well as standard deviation of that salary

You have chosen biology as your college major because you would like to be a medical doctor. However, you find that the probability of being accepted into medical school is about 10 percent. If you are accepted into medical school, then you’re starti..

  What is the clinics float

On a typical day, Park Place Clinic writes $1,000 in checks. Generally, those checks take four days to clear. Each day the clinic typically receives $1,000 in checks, which take three days to clear. What is the clinic's float?

  Most recent dividend per share paid on the stock

Teder Corporation stock currently sells for $30 per share. The market requires a 13.5 percent return on the firm's stock. If the company maintains a constant 8 percent growth rate in dividends, the most recent dividend per share paid on the stock was..

  What is the modified internal rate of return for the project

A company has an opportunity to invest in a project that is expected to result in after-tax cash flows of $18,000 the first year, $20,000 the second year, $23,000 the third year, -$8,000 the fourth year, $30,000 the fifth year, $36,000 the sixth year..

  Starbucks expansion is well documented in this case

Starbucks expansion is well documented in this case. Early in 2008 (and well before the widespread economic downturn) Starbucks began closing hundreds of stores across the U.S. Explain why you think this happened. Did Starbucks do anything “wrong” to..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd