Question

castew w ant wat in weather Lhota has renament holder with were years. W e MVA A) SS2.000.000 3) SI300.000 S12.000.000 ng atine nome r Nation has $220.000 and a e the firm has S 0 00, long term debt of $116,000, and common equity of 5435.00. What is its retro A) 1798 B) 18.62 1987% Question 31 Shives Publishing recently reported $13,000 of sales, 55,500 of operating costs other than and $1.250 of depreciation. The company had $3,500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 35%. During the year, the firm had expenditures on finest and net operating working capital that totaled $1,550. These expenditures were nevary for it to operations and generate future sales and cash flows. What was its free cash flow? A) $3.161 B) $3.763 C $3,086 Question 32 i s! Beranek Corp has 5855,000 of assets (which equal total invested capital), and it was to d financed only with common equity. The new CFO wants to employ enough debt to raise the total de to stal capital ratio to 40%, using the proceeds from borrowing to buy back common stock at its book value. How much must the firm borrow to achieve the target debt ratio? A) $287.280 B) $342.000 C) $318,060 Question 33 Ajax Corp's sales last year were $400,000, its operating costs were $362,500, and its interest charges $12.500. What was the firm's times-interest-earned (TIE) ratio? A) 3.00 B) 4.00 C) 2.04

Answer 1

Solution in ag Book value of Equity = $20,000,000 No. of shares of common stock = 1,000,000 current price of Shave - $ 32.00 So, Market value of Equity = No. of shares x = 1,000,000 X $ 32.00 = $ 32,000,000 Market value Added : Market value of Equity-Book value of Equity = $32,000,000 - $20,000,000 = $18,000,000 So, the right answer is (c) $ 12,000,000 . (30 Operating Income or Earning Before Interest & Tax = $ 270,000 Tax Rate = 40% or 0.40 Short term Debt = $ 119,000 long term Debt = $ 316,000 common Equity = $435,000

BE Return on invested capital (ROIC)- EBIT (1- Tax Rate) Shost trim Debt t long term Debt + common Equity $ 270,000 (1-0.40) $119,000+ $316,000+ $435,000 $2,70,000 (0.60) $870,000 $ 162,000 $ 870,000 0.1862 or 18.62%. The weight answer is (B) 18.62 % (3) Sales less: operating cost Deprecation Earning Before Interest $13,000 $5,500 $1,250 $ 6,250 & Tax or operating Income

Operating Income Less: Tax (351) Net Income $6,250 $2187 $ 4,063 Free Cash flow Net Income + Deprecatim- expenditure + Increase in Net Worthing Capital = $4,063 + $1250 – $1,550 $ 3,763 so, the reight answer is (8) $3,763 39 Total Assets of Beranek Corporation - $ 855,000 Earlier, Beranek losporation is all equity firm and it wants to raise the total debt to total capital ratio to 4oy.. So, the from needs to borrow to achieve the target debt ratio of 40% The Amount needed to borrows 4017. of $855,000 Ox $855,000 = $348,000 So, the right answer is B) $342,000

839 Sales operating = $400,000 lost = $362,500 Earning before Interest & Toy = Sales - operating cost = $400,000 - $ 362,500 = $ 37,500 Interest Expense = $12,500 Times Interest Earned Ratio - Earning before Interest & Tax Interest Expense ... z $ 37,500 $12,500 - 3.00 So (A) 3.00 times. the right answer is