chap 2 - Answers and Solutions: 2 - 1 Ch 2: SOLUTIONS TO...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Answers and Solutions: 2 - 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2-1 NI = $3,000,000; EBIT = $6,000,000; T = 40%; Interest = ? Need to set up an income statement and work from the bottom up. EBIT $6,000,000 Interest 1,000,000 EBT $5,000,000 EBT = Taxes (40%) 2,000,000 NI $3,000,000 Interest = EBIT - EBT = $6,000,000 - $5,000,000 = $1,000,000. 2-2 NI = $3,100,000; DEP = $500,000; AMORT = 0; NCF = ? NCF = NI + DEP and AMORT = $3,100,000 + $500,000 = $3,600,000. 2-3 EBIT = $170,000; Operating capital = $800,000; k A-T = 11.625%; T = 40%; EVA = ? EVA = EBIT(1 - T) - AT dollar cost of capital = $170,000(1 - 0.4) – ($800,000 × 0.11625) = $102,000 - $93,000 = $9,000. 2-4 NI = $50,000,000; R/E Y/E = $810,000,000; R/E B/Y = $780,000,000; Dividends = ? R/E B/Y + NI – Div = R/E Y/E $780,000,000 + $50,000,000 – Div = $810,000,000 $830,000,000 – Div = $810,000,000 $20,000,000 = Div. 2-5 EBITDA = $7,500,000; NI = $1,800,000; Int = $2,000,000; T = 40%; DA = ? EBITDA $7,500,000 DA 2,500,000 EBITDA – DA = EBIT; DA = EBITDA – EBIT EBIT $5,000,000 EBIT = EBT + Int = $3,000,000 + $2,000,000 Int 2,000,000 (Given) EBT $3,000,000 Taxes (40%) 1,200,000 NI $1,800,000 (Given) Answers and Solutions: 2 - 2 Ch 2: SOLUTIONS TO END-OF-CHAPTER PROBLEMS 6 . 0 $3,000,000 T) (1 $3,000,000 = - 6 . 0 000 , 800 , 1 $ ) T 1 ( 000 , 800 , 1 $ = -
Background image of page 2
Answers and Solutions: 2 - 3
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2-6 EBIT = $750,000; DEP = $200,000; AMORT = 0; 100% Equity; T = 40%; NI = ?; NCF = ?; OCF = ? First, determine net income by setting up an income statement: EBIT $750,000 Interest 0 EBT $750,000 Taxes (40%) 300,000 NI $450,000 NCF = NI + DEP and AMORT = $450,000 + $200,000 = $650,000. OCF = EBIT(1 - T) + DEP and AMORT = $750,000(0.6) + $200,000 = $650,000. Note that NCF = OCF because the firm is 100 percent equity financed. 2-7 Statements b, c, and d will all decrease the amount of cash on a company’s balance sheet, while Statement a will increase cash through the sale of common stock. This is a source of cash through financing activities. 2-8 a. NOPAT = EBIT(1 – T) = $4,000,000,000(0.6) = $2,400,000,000. b. NCF = NI + DEP and AMORT = $1,500,000,000 + $3,000,000,000 = $4,500,000,000. c. OCF = NOPAT + DEP and AMORT = $2,400,000,000 + $3,000,000,000 = $5,400,000,000. d. FCF = NOPAT – Net Investment in Operating Capital = $2,400,000,000 - $1,300,000,000 = $1,100,000,000. e. EVA = NOPAT – Capital of Cost T - A Capital Operating Supplied - Investor Total = $2,400,000,000 – [($20,000,000,000)(0.10)] = $400,000,000. 2-9 MVA = (P 0 × Number of common shares) - BV of equity $130,000,000 = $60X - $500,000,000 $630,000,000 = $60X X = 10,500,000 common shares. Answers and Solutions: 2 - 4
Background image of page 4
Answers and Solutions: 2 - 5
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2-10 First, determine the firm’s total operating capital: Total operating capital = Net operating working capital + Net fixed assets = $5,000,000 + $37,000,000 = $42,000,000. Now, you can calculate the firm’s EVA:
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 21

chap 2 - Answers and Solutions: 2 - 1 Ch 2: SOLUTIONS TO...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online