A firm is considering a new project of similar risk to the current risk of the firm. This project will expand its existing business. The cash flows of the project have been calculated assuming that there is no interest expense. In other words, the cash flows assume that the project is all-equity financed.
In fact the firm has a target debt-to-equity ratio of 1, so the project will be financed with 50% debt and 50% equity. To find the levered value of the firm's assets, what discount rate should be applied to the project's unlevered cash flows? Assume a classical tax system.
A project's net present value (NPV) is negative. Select the most correct statement.
Find Trademark Corporation's Cash Flow From Assets (CFFA), also known as Free Cash Flow to the Firm (FCFF), over the year ending 30th June 2013.
| Trademark Corp | ||
| Income Statement for | ||
| year ending 30th June 2013 | ||
| $m | ||
| Sales | 100 | |
| COGS | 25 | |
| Operating expense | 5 | |
| Depreciation | 20 | |
| Interest expense | 20 | |
| Income before tax | 30 | |
| Tax at 30% | 9 | |
| Net income | 21 | |
| Trademark Corp | ||
| Balance Sheet | ||
| as at 30th June | 2013 | 2012 |
| $m | $m | |
| Assets | ||
| Current assets | 120 | 80 |
| PPE | ||
| Cost | 150 | 140 |
| Accumul. depr. | 60 | 40 |
| Carrying amount | 90 | 100 |
| Total assets | 210 | 180 |
| Liabilities | ||
| Current liabilities | 75 | 65 |
| Non-current liabilities | 75 | 55 |
| Owners' equity | ||
| Retained earnings | 10 | 10 |
| Contributed equity | 50 | 50 |
| Total L and OE | 210 | 180 |
Note: all figures are given in millions of dollars ($m).
You're considering making an investment in a particular company. They have preference shares, ordinary shares, senior debt and junior debt.
Which is the safest investment? Which has the highest expected returns?
Which firms tend to have low forward-looking price-earnings (PE) ratios?
Only consider firms with positive earnings, disregard firms with negative earnings and therefore negative PE ratios.
The 'time value of money' is most closely related to which of the following concepts?
Question 738 financial statement, balance sheet, income statement
Where can a private firm's market value of equity be found? It can be sourced from the company's:
Question 869 economic order quantity
A Queensland farmer grows strawberries in greenhouses and supplies Australian supermarkets all year round. The farmer must decide how often he should contract the truck driver to deliver his strawberries and how many boxes to send on each delivery. The farmer:
- Sells 100,000 boxes of strawberries per year;
- Incurs holding costs (refrigeration and spoilage) of $16 per box per year; and
- Must pay the truck driver delivery fees at $0.20 per box plus a $500 fixed fee per delivery.
Which of the following statements about the Economic Order Quantity is NOT correct?
On which date would the stock price increase if the dividend and earnings are higher than expected?