Homework Answers
Answer 4(a):
Market capitalization = Number of shares * Share price = 5 * $22 = $110 million
Market capitalization = $110 million
Answer 4(b):
Market capitalization = $110 million
Book value of equity = $50 million
Market to book ratio = 110 / 50 = 2.2
Market to book ratio = 2.2
Answer 4(c):
Equity = 1.4 / (1 + 1.4) = 0.41667
Total assets = 50 / 0.41667 = $120 million
Debt = 120 - 50 = $70 million
Enterprise value = Market capitalization + Debt - Cash = 110 + 70 - 6.3 = $173.7 million
Enterprise value = $173.7 million
Answer 5:
Had the depreciation not decreased by $750,000, it could saved on income tax by = 750000 * 25% = $187,500
Effect on it year-end cash balance = $187,500
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