|Due By (Pacific Time)||12/23/2016 12:00 am|
#2)The common stock of Moe's Restaurant is currently selling for $78 per share has a book value of $65 per share, and there are 1.01 in million shares of common stock out standing.In addition, the firm also has104,000 bonds outstanding with par value of $1,000 that are selling at 105% of par. What are the capital structure weights that Moe's should use analyze its capital structure?
#3)Winchell investment advisors is evaluating the capital structure of Ojai Foods. Ojai's balance sheet indicates that the firm has $50.67million in total liabilities. Ojai has only $40.45 million in short and long term debt on its balance sheet. However, because interest rates have fallen dramatically since the debt was issued Ojai's short and longterm debt has a current market price that is 10% over its book value or $44.50 million. The book value of Ojai's common equity $49.59million but the market value of equity is currently $98.22 million. (a) What is Ojai's debt ratio and interest bearing debt ratio calculated using book value? (b) What is Ojais debt to enterprise value ratio calculated using the market values of the firm's debt and equity and assuming excess cash is zero? (c) If you were trying to describe Ojai's capital structure to a potential lender (abank), would you use the book value based debt ratio or the market value based debt to enterprise value ratio?
#4)Curley's Fried Chicken Kitchen operates two southern cooking restaurants in St. Louis, Missouri, and has the following financial structure: data table :
acc. payable $120,000
short term debt 399,000
Current liabilities $519,000
long term debt 2,104,000
owner's equility 1,508,000
The firm is considering an expansion that would involve raising an additional $2.6 million. (a) What are the firm's debt ratio and interest bearing debt ratio in its present capital structure?(b) If the firm wants to have a debt ratio of 50%, how much equity does the firm need to raise in order to finance the expansion?
#6)times interest earned ratio 2008= 10.51
times interest earned ratio 2007= 24.74
times interest earned ratio 2006= 65.91
Each of these values are correct. What is your assessment of how the firm's ability to service its debt obligations has changed over this period.
(a) Home Depot's ability to service its debt obligations has been steady over the years.
(b) Home Depot's ability to service its debt obligations has been fluctuating over the years.
(c) Home Depot's ability to service its debt obligations has been declining over the years.
(d)Home Depot's ability to service its debt obligations has been increasing over the years.
#7)You have developed the following proform a income statement for your corporation: Data table
variable cost (22,737,000)
revenue before fixed costs 23,065,000
fixed costs (9,203,000)
interest expense 1,419,000
earnings before taxes 12,443,000
net income 6,221,500
It represents the most recent year's operations, which ended yesterday. Your supervisor in the controller's office has just handed you a memorandum asking for written responses tothe following questions: (a) If sales sould increase by 30%, by what percent would earnings before interest and tsxes and netincome increase? (b) If sales should decrease by 30% by what percent would earnings before interest and taxes and net income decrease? (c) If the firm were to reduce its reliance on debt financing such that interest expense were cut in half, how would this affect your answere to parts (a)&(b)?
#8) Abe Forrester and three of his friends from collage have interested a group of venture capitalist in backing their business idea. The proposed operation would consist of a series of retail outlets to distribute and service a full line of vacuum cleaners and accessories. These stores would be located in Dallas, Houston, and San Antonio. To finance the new venture two plans have been proposed: Plan A is an allcommon equity structure in which $2.2 million dollars would be raised by selling 82,000 shares of common stock. Plan B would involve issuing $1.4 million in long term bonds with an effective interest rate of 12.1 % plus another $0.8 million would be raised by selling 41,000 shares of common stock. The debt funds raised under Plan B have no fixed maturity date, in that this amount of financial leverage is considered a permanent part of the firm's capital structure. Abe and his partners plan to use a 34% tax rate in their analysis, and they have hired you on a consulting basis to do the following. (a) Find the EBIT in difference level associated with the two financing plans. (b) prepare a pro forma income statement for the EBIT level solved for a part (a) that shows that EPS will be the same regardless whether plan A or B is chosen.
#10)Home Depot, Inc. had 1.70 billion shares of common stock outstanding in 2008, where as Lowes Companies , Inc. had 1.46 billion shares outstanding.Assuming Home Dpot's 2008 interest expense is $696million, Lowes' interest expense is $239 million and a 36% tax rate for both firms, what is their break even level of operating income (level of EBIT where EPS is the same for both firms)?
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