1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
otez555 [7]
3 years ago
7

O’Connell & Co. expects its EBIT to be $83,000 every year forever. The firm can borrow at 11 percent. O’Connell currently ha

s no debt, and its cost of equity is 15 percent.
1. If the tax rate is 35 percent, what is the value of the firm? (Round your answer to 2 decimal places. (e.g., 32.16)


2. What will the value be if the company borrows $144,000 and uses the proceeds to repurchase shares? (Round your answer to 2 decimal places. (e.g., 32.16))
Business
1 answer:
andrew11 [14]3 years ago
7 0

Answer:

1. $3,59,666.66

2. $4,10,066.66

Explanation:

1. The computation of value of firm is shown below:-

As the Earning before interest and tax given remains the same, this impact that there is no growth rate in the earnings to consider.

= Earning before interest and tax × (1 - Tax) ÷ Cost of equity

= $83,000 × (1 - 0.35) ÷ (0.15)

= $53,950 ÷ 0.15

= $3,59,666.66

2. The computation of value of levered firm is shown below:-

Value of unlevered firm + Debt × Tax rate

= 3,59,666.66 + ($144,000 × 35%)

= $4,10,066.66

You might be interested in
Consider a two-step mortgage for $150,000, 30 years, monthly payments, an initial interest rate of 5%, a cap of 5%, and a single
gladu [14]

Answer:

Consider the following calculations

Explanation:

This 2-step mortgage problem requires a 2-step solution.

To solve for the PMT for the last 23 years of the loan, we first need to know what the principal is at the end of the 7th year.

Thus, step I uses the initial info to solve for the PMT for each month of the first 7 years. N=360, I/Y=5(%)/12 = 0.416667(%), PV=150,000, => PMT = 805.

The discount rate will change to 5% index rate plus 2% margin = 7% at the beginning of the 8th year.

In Step II we first determine the remaining balance at the end of year 7. This requires using the amortization worksheet.

On the TI BA II Plus, AMORT is the secondary function of PV.

Set P1, the periods at which the calculations begin, equal to 1. We cursor down to P2, which is the last period of the calculation, and set it equal to 84. Cursoring down once again, we see that BAL at month 84 = 131,917.52.  

Going back to the TVM row, we set PV remaining at the end of 23 years = 131,917.52. I/Y is calcluated as 5(%) index rate plus 2(%) margin =7%; dividing 7(%) by 12 = 0.583333(%).  N=360-84 = 276 months left.

Finally, we solve for PMT = 962.89.

7 0
3 years ago
The most successful job candidates seek to transform themselves from unknown into known quantities through?
MrRa [10]

The most successful job candidates seek to transform themselves from the unknown into known quantities through networking.

<h3>What is meant by networking?</h3>

Networking, usually referred to as computer networking, is the process of moving data between nodes in an information system through a common media.

The most successful job hopefuls aim to use networking to go from being unknown to becoming a known quantity.

A computer network consists of two or more computers connected through cables (wired) or WiFi (wireless) for the transfer, exchange, or sharing of information and resources.

The goal of networking is to meet new people friends, acquaintances in related fields, and perhaps business partners. You can advance swiftly in your profession with these new connections. It becomes obvious why networking is such a great tool, not only for extroverts, when you put it that way.

To learn more about networking refer to:

brainly.com/question/1027666

#SPJ4

4 0
1 year ago
Myers Corporation has the following data related to direct materials costs for November: actual costs for 4,670 pounds of materi
lutik1710 [3]

Answer:

-4670 Favorable

Explanation:

actual- standard = variance

variance * actual lbs of material

5.2-6.2=-1*4670=-4670 Favorable

5 0
3 years ago
Skor Co. leased equipment to Douglas Corp. on January 2, 2011 for a 7-year period expiring December 31, 2017. Equal payments und
ExtremeBDS [4]

Answer:

$2,400,000

Explanation:

Always remember that in the case of a sales type lease, the lessor at the inception of the sales type lease would recognize sale of equipment at a price of present value of the lease payments which is $2,800,000 and cost of goods sold will be recorded at cost of equipment which is $2,400,000.

Case 1: If the equipment was an inventory then the double entry would be as under:

Recording of Sales:

Dr Lease Asset $2,800,000

Cr           Sale of Inventory $2,800,000

Recording of inventory out:

Dr Cost of Goods Sold $2,400,000

Cr           Inventory Account $2,400,000

Case 2: If the equipment was fixed asset then the double entry would be as under:

Recording of Sales:

Dr Lease Asset $2,800,000

Cr       Sale of Fixed Asset $2,800,000

Recording of equipment handing over to customer:

Dr Cost of Goods Sold $2,400,000

Cr        Equipment Account $2,400,000

In both of the cases the cost of goods sold will be $2,400,000.

4 0
3 years ago
A special repair to a machine will extend the life of the machine an additional four years beyond the original estimated life of
Bumek [7]

Answer:

C. A capital expenditure.

Explanation:

This is an example of a capital expenditure as it makes significant improvements to the machines and extends the life considerably.

These types of expenses are capitalized in the balance sheets under the original asset name and the asset is revalued by the improvement cost and stated at net book value + improvement.

Revised depreciation is then calculated on this new NBV as applicable with increased life of asset.

Hope that helps.

6 0
3 years ago
Other questions:
  • The Thematic Apperception Test (TAT) is a projective test ________. a. that is designed to be culturally relevant to minority gr
    5·2 answers
  • People who are good leaders also are almost always good managers. <br> a. True <br> b. False
    6·1 answer
  • According to the U.S. Census Bureau’s Current Population Survey, the mean and median 2014 income of people aged 25 – 34 years wh
    8·1 answer
  • Which of these statements about processes is not​ true?
    6·1 answer
  • Substantially all full-time employees may participate on an equitable basis.hich of the following is not a characteristic of a n
    12·1 answer
  • The monetary inflation needed to relieve the social and economic hardships of the late nineteenth century eventually came as a r
    9·1 answer
  • A hockey team plays in an arena with a seating capacity of 15 000 spectators. With ticket prices set at $12, average attendance
    15·1 answer
  • No journal entries are required for the reconciling items on the bank side because
    14·1 answer
  • A city assesses property owners $50 million to extend sewer lines to their neighborhood. By year-end, however, it has not begun
    5·1 answer
  • In a small open economy, if the world real interest rate is above the rate at which national saving equals domestic investment,
    11·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!