Business, 09.06.2021 19:20 samiller30
From the following selected data, determine the value of the firm, value of Equity, cost of equity and verify your calculations with overall cost of capital of the firm under Net Operating Income approach.
βββββEBIT βββ βOMRβ225,000
βββββ15% Debt βββOMR β500,000
βββββOverall Cost of Capital βββ25.7142%
Valuation of Total Value of Firm and Overall cost of Capital (WACC) under NOI Approach
15% Debt of OMR 500,000
Step-1 Total Market Value of the firm (V)
Total value of the firm = EBIT / Ko = 225000/0.257142
875003
EBIT = 225000
Ko = overall cost of capital = 25.7142% = 0.257142
Step-2 Total value of Equity ( E)
total Value of firm = Value of Equity + Value of Debt
V = E + Dβ¦..Therefore, E = V-D
= Step 1 - Debt
So, 875003 - 500000 = 375003
375003
Step-3 Calculate Cost of Equity (Ke)
cost of Equity = (EBIT - I)/E = (225000-75000)/375003 = 0.4
40%
EBIT = 225000
I = Interest = 500000 * 15% = 75,000
E = Step 2 = 375003
Step-4 Calculation of Overall Cost of capital (Ko)(WACC)
WACC = Ke(E/V) + Kd (D/V)
= (0.4)(375003/875003) + (0.15)(500000/875003)
(0.4)(0.4285) + (0.15)(0.5714)
0.1714 + 0.08571 = 0.25711
25.711%
Answers: 3
Business, 21.06.2019 21:30
Asavings account that pays interest every 3 months is said to have a interest period
Answers: 1
Business, 22.06.2019 06:30
Selected data for stickβs design are given as of december 31, year 1 and year 2 (rounded to the nearest hundredth). year 2 year 1 net credit sales $25,000 $30,000 cost of goods sold 16,000 18,000 net income 2,000 2,800 cash 5,000 900 accounts receivable 3,000 2,000 inventory 2,000 3,600 current liabilities 6,000 5,000 compute the following: 1. current ratio for year 2 2. acid-test ratio for year 2 3. accounts receivable turnover for year 2 4. average collection period for year 2 5. inventory turnover for year 2
Answers: 2
Business, 22.06.2019 13:50
Suppose portugal has 700 workers and 26,000 units of capital, and france has 18,000 workers and 700 units of capital. technology is identical in both countries. assume that wine is the capital-intensive good and cloth is the labor-intensive good. which of the following statements is correct if the nations start trading with each other? a) wages will increase in portugal.b) rental rates in france will increase.c) wages in france will decrease.d) rental rates in portugal will increase.
Answers: 2
Business, 22.06.2019 15:40
Brandt enterprises is considering a new project that has a cost of $1,000,000, and the cfo set up the following simple decision tree to show its three most likely scenarios. the firm could arrange with its work force and suppliers to cease operations at the end of year 1 should it choose to do so, but to obtain this abandonment option, it would have to make a payment to those parties. how much is the option to abandon worth to the firm?
Answers: 1
From the following selected data, determine the value of the firm, value of Equity, cost of equity a...
Social Studies, 11.02.2020 01:14
Mathematics, 11.02.2020 01:14
Mathematics, 11.02.2020 01:14
Mathematics, 11.02.2020 01:14
Health, 11.02.2020 01:14
Social Studies, 11.02.2020 01:14
English, 11.02.2020 01:14
History, 11.02.2020 01:14
Mathematics, 11.02.2020 01:14