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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