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Marrrta [24]
3 years ago
10

Franklin Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Un

der Plan I, the company would have 155,000 shares of stock outstanding. Under Plan II, there would be 105,000 shares of stock outstanding and $1.33 million in debt outstanding. The interest rate on the debt is 6 percent and there are no taxes.
Required:
a. Use MM Proposition I to find the price per share.
b. What is the value of the firm under each of the two proposed plans?
Business
1 answer:
expeople1 [14]3 years ago
8 0

Answer and Explanation:

The computation is shown below:

a. The price per share under MM proposition is

= Debt ÷ Difference in Number of shares

= $1,330,000 ÷ (155,000 - 105,000)

= $26.60

b. The value of the firm under each plans is

For All equity plan

= Share price × Number of shares

= $26.6 × 155,000 shares

= $4,123,000

For Levered plan

= All equity plan value + Debt × Tax rate

= $4,123,000 + $1,330,000 × 0%

= $4,123,000

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Answer:

gross profit ratio = (total revenue - cost of goods sold) / total revenue

I looked for the missing information:

year                    total sales                   cost of goods sold

2012                    $7,175                            $4,365

2013                    $8,052                           $5,140

2014                    $8,268                           $5,370

   

a)

gross profit ratio:

2012 = ($7,175 - $4,365) / $7,175 = 39.16%

2013 = ($8,052 - $5,140) / $8,052 = 36.16%

2014 = ($8,268 - $5,370) / $8,268 = 35.05%

b)

since the gross profit margin ratio is decreasing every year, we can assume that it will keep decreasing in 2015. Using linear regression, the slope is -0.02055. So the estimated gross profit margin ratio for 2015 = 34.33%

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estimated gross profit (first four months of 2015) = $527 billion x 34.33% = $180.92 billion

3 0
2 years ago
What is the discounted payback period for these cash flows if the initial cost is $11,800?
valentinak56 [21]
<span>C) initial cost = 11800 </span>

This time it will take you full 4 years

5300/1.13^4 = 3250.59

<span>14855.44 - 8800 = 3055.44 </span>

<span>cash required in year 4 = 3250.59 - 3055.44 = 195.15 </span>

<span>time required in year 4 = 195.15 / 3250.59 = 0.06 </span>

<span>Discounted payback period = year 1 + year 2 + year 3 + 0.06 = 3.06 years</span>
3 0
3 years ago
Accents Associates sells only one product, with a current selling price of $130 per unit. Variable costs are 60% of this selling
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Answer:

Break-even point (dollars)= $150,000

Explanation:

Giving the following information:

Selling price= $130

Unitary variable cost= 130*0.6= $78

Fixed costs= $40,000

Desired profit= $20,000

<u>To calculate the sales in dollars to reach the desired profit, we need to use the following formula:</u>

<u></u>

Break-even point (dollars)= (fixed costs + desired profit) / contribution margin ratio

Break-even point (dollars)= (20,000 + 40,000) / [(130 - 78) / 130]

Break-even point (dollars)= 60,000 / 0.4

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8 0
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Answer:

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Explanation:

Given:

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Find:

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A = P[1+r]ⁿ

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20,000 = P[1.10]³

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5 0
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Mrac [35]

Answer:

Please find solutions in the attached images

Explanation:

I have attached images of my journal entry solutions to this question as required.

5 0
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