financial statements12

financial statements12 - rate will remain at 40 percent. If...

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MVA Answer: c Diff: E i . Byrd Lumber has 2 million shares of common stock outstanding and its stock price is $15 a share. On the balance sheet, the company has $40 million of common equity. What is the company’s Market Value Added (MVA)? a. -$80,000,000 b. -$20,000,000 c. -$10,000,000 d. $20,000,000 e. $80,000,000 Medium: Rate of interest Answer: c Diff: M ii . A firm has notes payable of $1,546,000, long-term debt of $13,000,000, and total interest expense of $1,300,000. If the firm pays 8 percent interest on its long-term debt, what interest rate does it pay on its notes payable? a. 8.2% b. 13.1% c. 16.8% d. 18.0% e. 15.3% Calculating change in net income Answer: c Diff: M R iii . Garfield Industries is expanding its operations throughout the Southeast United States. Garfield anticipates that the expansion will increase sales by $1,000,000 and increase operating costs (excluding depreciation and amortization) by $700,000. Depreciation and amortization expenses will rise by $50,000, interest expense will increase by $150,000, and the company’s tax
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Unformatted text preview: rate will remain at 40 percent. If the companys forecast is correct, how much will net income increase or decrease, as a result of the expansion? a. No change b. $ 40,000 increase c. $ 60,000 increase d. $100,000 increase e. $180,000 increase i . MVA Answer: c Diff: E MVA = (Shares outstanding)(Stock Price) - Total common equity. MVA = (2,000,000)($15) - $40,000,000 MVA = -$10,000,000. ii . Rate of interest Answer: c Diff: M Long-term interest = ($13,000,000)(0.08) = $1,040,000. Short-term interest = $1,300,000 - $1,040,000 = $260,000. Short-term interest rate = $260,000/$1,546,000 = 16.82% 16.8%. iii . Calculating change in net income Answer: c Diff: M R Set up an income statement: Sales $1,000,000 Operating costs excl. dep. and amort. 700,000 EBITDA $ 300,000 Depreciation and amortization 50,000 EBIT $ 250,000 Interest 150,000 EBT $ 100,000 Taxes (40%) 40,000 Taxes = 0.4($100,000) = $40,000. Net income $ 60,000...
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This note was uploaded on 08/04/2011 for the course COMM 101 taught by Professor Sy during the Spring '11 term at USC.

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financial statements12 - rate will remain at 40 percent. If...

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