Metallica Heavy Metal Mining Corporation wants to diversify its operations. Some recent financials information on the company is listed below: Stock Price $73 # of Shares 40,000 Total Assets $ 7,600,000 Total Liabilities $2,200,000 Net Income $440,000 The company is considering an investment that has the same PE Ratio as the firm. The cost of investment is $800,000 and it will be financed with a new equity issue. The return on investment will equal the company's current ROE. Current Book Value Per Share $135.00 New Book Value Per Share $121.30 Current market To Books 5407 New Market to Books .5409 Current EPS $11.00 New EPS $9.89 What is the NPV of the investment? If negative please note with minus sign and be rounded to nearest who dollar.
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- The Manx Company was recently formed to manufacture a new product. It has the following capital structure in market value terms. Debentures $ 6,000,000 Preferred Stock $ 2,000,000 Common Stock (320,000 shares) $ 8,000,000 Total Capital $ 16,000,000 The company has a marginal tax rate of 15%. A study of publicly held companies in this line of business suggests that the requires return on equity is about 17%. (The CAPM approach was used to determine the required rate of return.) The Manx Company’s debt is currently yielding 13%, and its preferred stock is yielding 12%. Compute the firms weighted average cost of capital.The management of Peerless Fabrics Inc. is considering a change in its capital structure.Currently, Peerless has 100,000 shares outstanding at a market price of $40 each. It is also carrying loansworth $1,500,000 on its balance sheet with an interest rate of 6% p.a, thus implying a corporate D/E ratio of0.375:1The EBIT is $575,000 and is expected to remain constant every year for an indefinite time. Since Peerlessproduces indigenous fabric, it enjoys a tax holiday which is available to all businesses that promote importsubstitution. As such, Peerless lives in a tax-free world for now and passes on the benefit to its shareholdersin the form of 100% dividend payout.The proposal for a change in capital structure is about reducing the reliance on debt during uncertain timesthat the ongoing pandemic has created. After lengthy negotiations with the lenders, the lenders have agreedfor Peerless to pre-pay 25% of its outstanding loan without penalty. The management is keen to follow throughwith…The Manx Company was recently formed to manufacture a new product. It has the following capital structure in market value terms: Debentures $ 6,000,000 Preferred stock $2,000,000 Common stock(320,000 shares) $8,000,000 Total $16,000,000 The company has a marginal tax rate of 40 percent. A study of publicly held companies in this line of business suggests that the required return on equity is about 17 percent. (The CAPM approach was used to determine the required rate of return.) The Manx Company’s debt is currently yielding 13 percent, and its preferred stock is yielding 12 percent. Compute the firm’s present weighted average cost of capital.
- The management of Peerless Fabrics Inc. is considering a change in its capital structure.Currently, Peerless has 100,000 shares outstanding at a market price of $40 each. It is also carrying loansworth $1,500,000 on its balance sheet with an interest rate of 6% p.a, thus implying a corporate D/E ratio of0.375:1The EBIT is $575,000 and is expected to remain constant every year for an indefinite time. Since Peerlessproduces indigenous fabric, it enjoys a tax holiday which is available to all businesses that promote importsubstitution. As such, Peerless lives in a tax-free world for now and passes on the benefit to its shareholdersin the form of 100% dividend payout.The proposal for a change in capital structure is about reducing the reliance on debt during uncertain timesthat the ongoing pandemic has created. After lengthy negotiations with the lenders, the lenders have agreedfor Peerless to pre-pay 25% of its outstanding loan without penalty. The management is keen to follow throughwith…The management of Peerless Fabrics Inc. is considering a change in its capital structure.Currently, Peerless has 100,000 shares outstanding at a market price of $40 each. It is also carrying loansworth $1,500,000 on its balance sheet with an interest rate of 6% p.a, thus implying a corporate D/E ratio of0.375:1The EBIT is $575,000 and is expected to remain constant every year for an indefinite time. Since Peerlessproduces indigenous fabric, it enjoys a tax holiday which is available to all businesses that promote importsubstitution. As such, Peerless lives in a tax-free world for now and passes on the benefit to its shareholdersin the form of 100% dividend payout.The proposal for a change in capital structure is about reducing the reliance on debt during uncertain timesthat the ongoing pandemic has created. After lengthy negotiations with the lenders, the lenders have agreedfor Peerless to pre-pay 25% of its outstanding loan without penalty. The management is keen to follow throughwith…The management of Peerless Fabrics Inc. is considering a change in its capital structure.Currently, Peerless has 100,000 shares outstanding at a market price of $40 each. It is also carrying loansworth $1,500,000 on its balance sheet with an interest rate of 6% p.a, thus implying a corporate D/E ratio of0.375:1The EBIT is $575,000 and is expected to remain constant every year for an indefinite time. Since Peerlessproduces indigenous fabric, it enjoys a tax holiday which is available to all businesses that promote importsubstitution. As such, Peerless lives in a tax-free world for now and passes on the benefit to its shareholdersin the form of 100% dividend payout.The proposal for a change in capital structure is about reducing the reliance on debt during uncertain timesthat the ongoing pandemic has created. After lengthy negotiations with the lenders, the lenders have agreedfor Peerless to pre-pay 25% of its outstanding loan without penalty. The management is keen to follow throughwith…
- A)Company Z is a computer manufacturing company that is considering diversifying into financial services. This will require an investment of £100 million and this is to be raised via an equity issue. Given the following information, calculate the weighted average cost of capital (WACC) making sure that you clearly state any assumptions made: Dividend per share, d0 = 10p.The market price per share, PE = 108p cumulative div.Earnings per share, eps = 15p.Book Value of Capital Employed = £8,400,000.There are 28 million shares in issue.£30m. 17% irredeemable debt currently quoted at £120 ex int. 800,000, 8% redeemable debentures which are redeemablein 4 years’ time and have a current market price of £82.50 ex int. £5m. 7-year term loan at 5% over base.Bank base rate = 11%.Corporation tax = 30%. B)What assumptions lie behind the use of the WACC as a discount rate in investment appraisal. C)In light of the above assumptions and the answer to part (a), is it safe for Company Z to use the…Hardwig Inc. is considering whether to pursue a restricted or relaxed current asset investment policy. The firm's annual sales are expected to total $3,600,000, its fixed assets turnover ratio equals 4.0, and its debt and common equity are each 50% of total assets. EBIT is $150,000, the interest rate on the firm's debt is 10%, and the tax rate is 40%. If the company follows a restricted policy, its total assets turnover will be 2.5. Under a relaxed policy its total assets turnover will be 2.2. Refer to the data for Hardwig, Inc.Assume now that the company believes that if it adopts a restricted policy, its sales will fall by 15% and EBIT will fall by 10%, but its total assets turnover, debt ratio, interest rate, and tax rate will all remain the same. In this situation, what's the difference between the projected ROEs under the restricted and relaxed policies?Perseverance Corporation is deciding whether to pursue a restricted or relaxed current asset investment policy. The firm's annual sales are expected to total P3,600,000, its fixed assets turnover ratio equals 4.0, and its debt and common equity are each 50% of total assets. EBIT is P150,000, the interest rate on the firm's debt is 10%, and the tax rate is 40%. If the company follows a restricted policy, its total assets turnover will be 2.5. Under a relaxed policy its total assets turnover will be 2.2. What's the difference in the projected ROES under the restricted and relaxed policies? [Round off to one decimal place.)
- Marble Construction estimates that its WACC is 10% if equitycomes from retained earnings. However, if the company issues new stock to raise newequity, it estimates that its WACC will rise to 10.8%. The company believes that it willexhaust its retained earnings at $2,500,000 of capital due to the number of highly profitable projects available to the firm and its limited earnings. The company is considering the following7 investment projects: Assume that each of these projects is independent and that each is just as risky as the firm’sexisting assets. Which set of projects should be accepted, and what is the firm’s optimalcapital budget?Hanley Limited manufactures products that capture solar energy. The company plans to list its shares on the Venture Exchange. To do so, it must meet all of the following initial listing requirements (among others): Net tangible assets must be at least $500,000. Pre-tax earnings must be $50,000. The company must have adequate working capital. Hanley has experienced significant growth in sales and is having difficulty estimating its bad debt expense. During the year, the sales team has been extending credit more aggressively in order to increase their commission compensation. Under the percentage-of-receivables approach using past percentages, the estimate is $50,000. Hanley has performed an aging and estimates the bad debts at $57,000. Finally, using a percentage of sales, the expense is estimated at $67,000. Before booking the allowance, net tangible assets are approximately $550,000. The controller decides to accrue $50,000, which results in pre-tax earnings of $60,000.…Marble Construction estimates that its WACC is 9% if equity comes from retained earnings. However, if the company issues new stock to raise new equity, it estimates that its WACC will rise to 9.5%. The company believes that it will exhaust its retained earnings at $2,400,000 of capital due to the number of highly profitable projects available to the firm and its limited earnings. The company is considering the following seven investment projects: Project Size IRR A $ 610,000 13.7 % B 1,060,000 13.4 C 990,000 9.1 D 1,200,000 10.0 E 470,000 9.3 F 610,000 8.8 G 700,000 10.1 Assume that each of these projects is independent and that each is just as risky as the firm's existing assets. Which set of projects should be accepted? Project A Project B Project C Project D Project E Project F Project G What is the firm's optimal capital budget? Round your answer to the nearest dollar. $