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svet-max [94.6K]
3 years ago
10

Tropical Fruit Extracts expects its earnings before interest and taxes to be $218,000 a year forever. Currently, the firm has no

debt. The cost of equity is 16.3 percent and the tax rate is 35 percent. The company is in the process of issuing $2 million of bonds at par that carry a 6.5 percent annual coupon. What is the unlevered value of the firm
Business
1 answer:
katen-ka-za [31]3 years ago
3 0

Answer:

The unlevered value of the firm is $869325.15

Explanation:

For computing the value of unlevered firm, the following formula should be used which is shown below:

Value of levered firm = Earning before interest and taxes × (1 - tax rate) ÷ cost of equity

where,

Earnings before income and taxes are $218,000

Cost of equity is 16.3%

And, the tax rate is 35%

Now put these values on the above formula

So, the value would be equals to

= $218,000 × (1 - 0.35) ÷ 16.3%

= $141,700 ÷ 16.3%

= $869325.15

The other terms like bonds and the annual coupon should not be considered in the computation part because we have to calculate for unlevered firm which only includes equity and the bond is a debt security. Thus, it is irrelevant.

Hence,  the unlevered value of the firm is $869325.15

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Barbara operates a sporting goods store. She uses the cash method and treats inventory as nonincidental supplies. At the beginni
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Answer:

$454,000

Explanation:

Ending inventory is the value of the inventory in the store at the end of the year.

Goods are purchased and added to the the beginning inventory, the sale for the period is deducted from it. the residual value is the value of ending Inventory.

In This question it is assumed that there is $26,000 of beginning inventory of the goods. $470,000 of the purchases were made and at the end of the year there was $42,000 balance of inventory.

We can calculate the deduction value as follow

Ending Inventory = Beginning Inventory + Purchases - deduction

$42000 = $26,000 + $470,000 - deduction

$42000 = $496,000 - deduction

Deduction = $496,000 - $42,000 = $454,000

5 0
3 years ago
As the name suggests, convertible bonds allow the owner the option to convert the bonds into a fixed number of shares of common
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Answer: 1. Convertible bond

2. Putable bond

3. Purchasing power bond.

Explanation:

The $100,000 investment is a convertible bond. This is a fixed-income debt security which yields interest payments. It should be noted that it can also be converted to equity shares or common stock.

Nazeem should pick a putable bond. This is because the puttable bond has a put option that is embedded ans he can also demand his principal to be paid early.

Nazem also recently bought bonds that have their interest rate tied to the consumer price index (CPI) so that he will be protected if inflation rates increase. Nazem has invested in purchasing power bond .

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The adjusting entry for accrued interest on a note receivable would include a __________ to __________.
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C. The adjusting entry for accrued interest on a note receivable would include a credit to interest revenue
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Economic growth depends on many factors. mark the three KEY elements that have been shown to be important listed
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Answer:

is d

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The Federal Reserve System and the New York Stock Exchange regulations currently require the short seller to have an initial mar
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Answer:

Correct answer is 50%

Explanation:

The appropriate response is half.  

The Regulation T of the Federal Reserve Board requires the equalization for all short deal records to be at any rate 150% of the estimation of the protections at the time the deal is started.  

This implies when the short deal is started, as we are selling the offers first, our record will have the 100% estimation of the offers sold (as we receipts of cash from selling) in addition to an extra edge prerequisite of half of the estimation of the short deal.  

For instance, on the off chance that I am short selling an offer whose cost is $100, at that point when I short sell the offer, my record equalization will become $100, as receipts of the deal.  

Along these lines, at the hour of inception of offer, my record equalization ought to be 150% of the estimation of short deal = 150% of $100 = $150. The separation of this sum is  

100% of $100 = $100, which gets credited to my record  

in addition half of $100 = $50, which is the edge necessity at the inception of short deal.  

In this way, Initial edge necessity is atleast half of the cost of the stock.  

The student ought not befuddle the underlying edge necessity with the base upkeep edge.  

The base support edge required to be kept up is 25%. This implies the short dealer ought to consistently have an edge (not balance) of 25% in the record. In the event that the edge goes beneath 25%, at that point the edge require the distinction sum is actuated, which the short dealer is required to pay to keep on keeping her situation in the market unaltered.  

Be that as it may, beginning edge required to be kept up is half.

8 0
3 years ago
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