Homework Answers
If the company can monopolize the total benefit, then its final benefit would be the sum of both social and private benefit. This is shown below.
The points, with interest rate and total benefit, are plotted below.
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Life Solutions, Inc. is putting together its R&D budget for the coming year. The firm has...
Silvana Inc. projects the following data for the coming year. If the firm follows the residual...
Silvana Inc. projects the following data for the coming year. If the firm follows the residual dividend policy and also maintains its target capital structure, what will its payout ratio be? $525,000 40% EBIT $2,000,000 Capital budget Interest rate 10% % Debt Debt outstanding $5,000,000 % Equity Shares outstanding 5,000,000 Tax rate Select the correct answer. 60% 40% O a. 62.15% b. 65.00% O c. 65.95% d. 64.05% e. 63.10%
1 a) IHI, Inc. forecasts that its free cash flow in the coming year, i.e., at...
1 a) IHI, Inc. forecasts that its free cash flow in the coming year, i.e., at t=1, will be -$5 million, but then its FCF will turn positive. At t=2 IHIs FCF will be $35 million, and at t=3 IHI will be $58 million. After year 3, FCF is expected to grow at a constant rate of 5% forever. If IHI’s weighted average cost of capital is 18%, what is the firms value of operations, in millions? 1. b) A...
Quigley Inc. is considering two financial plans for the coming year. Management expects sales to be $300,000, operating...
Quigley Inc. is considering two financial plans for the coming year. Management expects sales to be $300,000, operating costs to be $265,000, assets (which is equal to its total invested capital) to be $200,000, and its tax rate to be 35%. Under Plan A it would finance the firm using 25% debt and 75% common equity. The interest rate on the debt would be 8.896, but under a contract with existing bondholders the TIE ratio would have to be maintained...
Island Hotels, Inc. (IHI) forecasts that its free cash flow in the coming year, i.e., at...
Island Hotels, Inc. (IHI) forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$7 million (negative), but then its FCF will turn positive. At t = 2 IHI’s FCF will be $35 million, and at t = 3 IHI’s FCF will be $58 million. After Year 3, FCF is expected to grow at a constant rate of 5% forever. If IHI’s weighted average cost of capital is 19%, what is the firm's...
Island Hotels, Inc. (IHI) forecasts that its free cash flow in the coming year, i.e., at...
Island Hotels, Inc. (IHI) forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$7 million (negative), but then its FCF will turn positive. At t = 2 IHI’s FCF will be $35 million, and at t = 3 IHI’s FCF will be $58 million. After Year 3, FCF is expected to grow at a constant rate of 5% forever. If IHI’s weighted average cost of capital is 19%, what is the firm's...
Zhdanov, Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$15 million (negative), but...
Zhdanov, Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$15 million (negative), but its FCF at t = 2 will be $30 million. After Year 2, FCF is expected to grow at a constant rate of 3% forever. If the weighted average cost of capital is 17%, what is the firm's value of operations, in millions? Enter your answer rounded to two decimal places. Do not enter $ or comma...
Ronald was recently hired by Highland Equipment Inc. as a junior budget analyst. He is working for the Venture Capital D...
Ronald was recently hired by Highland Equipment Inc. as a junior budget analyst. He is working for the Venture Capital Division and has been given for capital budgeting projects to evaluate. He must give his analysis and recommendation to the capital budgeting committee. Ronald has a B.S. in accounting from (2011) and passed the CPA exam (2017). He has been in public accounting for several years. During that time he earned an MBA from Seattle U. He would like to...
Ziege Systems is considering the following independent projects for the coming year: Project ...
Ziege Systems is considering the following independent projects for the coming year: Project Required Investment Rate of Return Risk A $4 million 12.25% High B 5 million 14.75 High C 3 million 10.25 Low D 2 million 10.25 Average E 6 million 13.25 High F 5 million 13.25 Average G 6 million 8.25 Low H 3 million 12.75 Low Ziege's WACC is 10.75%, but it adjusts for risk by adding 2% to the WACC for high-risk projects and subtracting 2%...
A) Diversified Industries, Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$18 milli...
A) Diversified Industries, Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$18 million (negative), but its FCF at t = 2 will be $35 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 13%, what is the firm's value of operations, in millions? Enter your answer rounded to two decimal places. Do not enter $...
The Valley Research Inc. is contemplating a research and development (R&D) program encompassi...
The Valley Research Inc. is contemplating a research and development (R&D) program encompassing five potential research projects named 1, 2, 3, 4, and 5. All the projects are expected to go on simultaneously. The company is constrained from embarking on all projects by the number of scientists it has and the budget available for R&D projects. The company has 23 scientists and $300,000 (three hundred thousand dollars) budgeted for R&D projects. Furthermore, since projects 2 and 5 require the involvement...
Silvana Inc. projects the following data for the coming year. If the firm follows the residual dividend policy and also maintains its target capital structure, what will its payout ratio be? $525,000 40% EBIT $2,000,000 Capital budget Interest rate 10% % Debt Debt outstanding $5,000,000 % Equity Shares outstanding 5,000,000 Tax rate Select the correct answer. 60% 40% O a. 62.15% b. 65.00% O c. 65.95% d. 64.05% e. 63.10%
Quigley Inc. is considering two financial plans for the coming year. Management expects sales to be $300,000, operating costs to be $265,000, assets (which is equal to its total invested capital) to be $200,000, and its tax rate to be 35%. Under Plan A it would finance the firm using 25% debt and 75% common equity. The interest rate on the debt would be 8.896, but under a contract with existing bondholders the TIE ratio would have to be maintained...
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