HW_3_Questions_Chapters_16_17[1] - HW 3 Chapter 16 Use the...

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HW 3 Chapter 16, 17 Chapter 16 Use the following information to answer questions 1-5: Suppose # of units sold (Q) = 1,000,000 Price per unit (P) = $10 Variable cost (V) = $4 Fixed operating costs =250,000 Fixed financing cost = 100,000 Tax rate is 35%. 1. DOL? 2. DFL? 3. DTL? 4. How does net income change if unit sales increases by 3%? 5. How does financial leverage affect net income given a 1% change in operating income? 6. Cony Inc. produces platforms for home televisions. If they produce 40 million units, it estimates that it can sell them $80 each. The variable costs are $65 per unit, whereas the fixed production costs are $1 billion. What is the operating breakeven? 7. Company A has zero debt and the operating income is $25,000. Company A now issues $100,000 of debt at an 8% interest rate. What are the values of the company with and without debt? Assume cost of capital=10% and a 35% tax rate.
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Chapter 17 1. Assume that net income = $500, Corporate tax rate = 35%, Dividend policy = 100% payout, Shareholder tax rate on dividends=25%. Calculate the implied tax rate on the dividends received by investors. 2. JC Industries plans to borrow $12 million to repurchase shares. Based on the following calculate the EPS after the buyback. Share price at time of buyback: $50 EPS before buyback: $2 After-tax cost of borrowing: 5% Shares outstanding: 2 million Planned buyback: 200,000 shares 3. CHI is evaluating the impact of a buyback of $10 million dollars or 10% of the market
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This note was uploaded on 09/06/2011 for the course FIN 351 taught by Professor Li during the Spring '09 term at S.F. State.

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HW_3_Questions_Chapters_16_17[1] - HW 3 Chapter 16 Use the...

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