Financial Statements, Cash Flow, and Taxes4

Financial Statements, Cash Flow, and Taxes4 - Variable...

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Old Exam Questions - Financial Statements, Cash Flow, and Taxes Page 17 of 44 Pages Variable Costs Fixed Costs EBIT Interest EBT Taxes Net Income Dividends Per Share A. $43.48 B. $45.42 C. $39.46 D. $41.40 E. $37.44 21. Assume that a firm’s optimal capital structure consists of 30% debt at a before-tax cost of debt (K D ) of 6 percent, 10% preferred stock at a cost of preferred (K P ) of 8 percent, and 60% stock at a cost of stock (K S ) of 12 percent (you may assume that the firm will be able to meet all of its equity needs through retained earnings). Now assume that the firm has $6,500,000 of invested capital, EBIT of $1,125,000, and a tax rate of 40 percent. Based on this information, determine the firm’s economic value added (EVA). A. $80,200 B. $84,800 C. $89,400 D. $82,500 E. $87,100 22. Assume that a firm’s optimal capital structure (investor supplied capital) consists of $30,000 of debt at a before-tax cost of debt (K D ) of 8 percent, $10,000 of preferred stock at a cost of preferred (K P ) of 8 percent, and $60,000 of stock at a cost of stock (K S ) of 14 percent. Also assume that the firm’s tax rate is 40% and that its EBIT is $53,750. Given this information, determine the firm’s EVA. A. $22,610 B. $20,610 C. $23,610 D. $21,610 E. $24,610 23. Assume that your company has the following information for the previous year: Net income = $300; Net operating profit after taxes (NOPAT) = $330; Total assets = $2,000; and Total net operating capital = $1,500. Also assume that the information for the current year is: Net income = $510; Net operating profit after taxes (NOPAT) =
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Old Exam Questions - Financial Statements, Cash Flow, and Taxes Page 18 of 44 Pages $558; Total assets = $2,300; and Total net operating capital = $1,800. Given this information, determine the free cash flow (FCF) for the current year. A. $275 B. $326 C. $292 D. $258 E. $309 24. Assume that your firm has just opened for business. The firm is being funded with investor-supplied capital equal to $20,000,000: liabilities equal to 40 percent of capital and equity equal to 60 percent of capital. Also assume that creditors require a before- tax rate of return of 8 percent, while stockholders require a 14 percent return. [Based on this information, and knowing that the tax rate is 40 percent, you should be able to
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Financial Statements, Cash Flow, and Taxes4 - Variable...

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