EBK CFIN
6th Edition
ISBN: 9781337671743
Author: BESLEY
Publisher: CENGAGE LEARNING - CONSIGNMENT
expand_more
expand_more
format_list_bulleted
Question
Chapter 2, Problem 19PROB
Summary Introduction
EWD's 60% of assets are financed with common equity. Its current ratio is 5, total assets turnover is 4, current assets equal to $150,000, and sales are $1,800,000. Long-term liabilities and current liabilities to be calculated.
The total asset turnover ratio is the efficiency ratio which is used to measure how much sales is generated by using the firm's total assets.
Current ratio is one of the liquidity ratios which is used to measure the short-term ability of the firm to pay the firm's short-term obligations with its current assets.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Reynolds Construction's current value of operations is $750 million based on the free cash flow valuation model. Its balance sheet shows $50 million of short-term investments that are unrelated to operations, and $300 million of total debt. What is the best estimate for the firm's value of equity, in millions?.
Peterson Packaging Corp. has $9 billion in total assets. The company's basic earning power (BEP) ratio is
9 percent, and its times interest earned ratio is 3.0. Peterson's depreciation and amortization expense
totals $1 billion. It has $0.6 billion in lease payments and $0.3 billion must go towards principal
payments on outstanding loans and long-term debt. What is Peterson's EBITDA coverage ratio?
Peterson Packaging Corp. has $9 billion in total assets. The company’s basic earning power (BEP) ratiois 9 percent, and its times interest earned ratio is 3.0. Peterson’s depreciation and amortizationexpense totals $1 billion. It has $0.6 billion in lease payments and $0.3 billion must go towardsprincipal payments on outstanding loans and long-term debt. What is Peterson’s EBITDA coverageratio?
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Ivanhoe Network Associates has a current ratio of 1.60, where the current ratio is defined as follows: current ratio = current assets/current liabilities. The firm's current assets are equal to $1,236,000, its accounts payable are $422,000, and its notes payable are $350,000. Its inventory is currently at $ 724,000. The company plans to raise funds in the shot - term debt market and invest the entire amount in additional inventory. How much can notes payable increase without the current ratio falling below 1.50?arrow_forwardNational Co. make these assumptions for valuation purposes:a. The firm consists of a single asset that will generate pretax net cash flows of P3,000,000 per year forever.b. The income tax rate is 25%.c. After making debt service payments and paying taxes, the firm pays dividends to distribute any remaining cash flows to the equity shareholders each year.d. The equity shareholders finance a portion of the investment in the asset with P60,000,000 of equity capital. (Equity ratio = 6/10 = 60%)e. The firm finances the remainder of the asset using P40,000,000 of debt capital. (Debt ratio = 40% = 4/10)f. This amount of debt in the firm’s capital structure does not alter substantially the risk of the firm to the equity investors, so they continue to require a 12% rate of return.g. The debt is issued at par, and it is less risky than equity; so the debt-holders demand interest of only 7% each year, payable at the end of each year.h. Interest expense is deductible for income tax purposes 1.…arrow_forwardNational Co. make these assumptions for valuation purposes:a. The firm consists of a single asset that will generate pretax net cash flows of P3,000,000 per year forever.b. The income tax rate is 25%.c. After making debt service payments and paying taxes, the firm pays dividends to distribute any remaining cash flows to the equity shareholders each year.d. The equity shareholders finance a portion of the investment in the asset with P60,000,000 of equity capital. (Equity ratio = 6/10 = 60%)e. The firm finances the remainder of the asset using P40,000,000 of debt capital. (Debt ratio = 40% = 4/10)f. This amount of debt in the firm’s capital structure does not alter substantially the risk of the firm to the equity investors, so they continue to require a 12% rate of return.g. The debt is issued at par, and it is less risky than equity; so the debt-holders demand interest of only 7% each year, payable at the end of each year.h. Interest expense is deductible for income tax…arrow_forward
- Harriett Industries has $7.5 billion in total assets. The company’s basic earning power (BEP) ratio is 10 percent, and its times interest earned ratio is 2.5. Harriett’s depreciation and amortization expense totals $1.25 Billion. It has $775 Million in lease payments and $500 Million must go toward principal payments on outstanding loans and long-term debt. What is Harriett’s EBITDA coverage ratio?arrow_forwardEdwards Construction currently has debt outstanding with a market value of $98,000 and a cost of 10 percent. The company has EBIT of $9,800 that is expected to continue in perpetuity. Assume there are no taxes. a-1. What is the value of the company's equity? a-2. What is the debt-to-value ratio? b. What are the equity value and debt-to-value ratio if the company's growth rate is 4 percent? c. What are the equity value and debt-to-value ratio if the company's growth rate is 8 percent?arrow_forwardOnshore Bank has $28 million in assets, with risk-weighted assets of $18 million. Core Equity Tier 1 (CET1) capital is $950,000, additional Tier I capital is $210,000, and Tier II capital is $416,000. The current value of the CET1 ratio is 5.28 percent, the Tier I ratio is 6.44 percent, and the total capital ratio is 8.76 percent. Calculate the new value of CET1, Tier I, and total capital ratios for the following transactions. a. The bank repurchases $108,000 of common stock with cash. b. The bank issues $2.8 million of CDs and uses the proceeds to issue category 1 mortgage loans with a loan-to-value ratio of 80 percent. c. The bank receives $508,000 in deposits and invests them in T-bills. d. The bank issues $808,000 in common stock and lends it to help finance a new shopping mall. The developer has an A+ credit rating. e. The bank issues $1.8 million in nonqualifying perpetual preferred stock and purchases general obligation municipal bonds. f. Homeowners pay back $4.8 million of…arrow_forward
- Onshore Bank has $31 million in assets, with risk-adjusted assets of $21 million. Core Equity Tier 1 (CET1) capital is $1,050,000, additional Tier I capital is $270,000, and Tier II capital is $422,000. The current value of the CET1 ratio is 5 percent, the Tier I ratio is 6.29 percent, and the total capital ratio is 8.3 percent. Calculate the new value of CET1, Tier I, and total capital ratios for the following transactions. b. The bank issues $3.1 million of CDs and uses the proceeds to issue category 1 mortgage loans with a loan-to-value ratio of 70 percent. d. The bank issues $811,000 in common stock and lends it to help finance a new shopping mall. The developer has an A+ credit rating. f. Homeowners pay back $5.1 million of mortgages with loan-to-value ratios of 50 percent and the bank uses the proceeds to build new ATMs. Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E The bank issues $811,000 in common…arrow_forwardCompany X has debt and equity as sources of funds. Company X has market value of debtas $150,000 and book value of debt as $80,000. The company has book value of equity as$100,000 and market value of equity as $125,000. The cost of debt is 8.25% and cost ofequity is 9.57%. the tax rate is 38%. What is the Weighted Average Cost of Capital(WACC)?a. 7.59%b. 7.78%c. 7.14%d. 7.68%arrow_forwardOnshore Bank has $39 million in assets, with risk-adjusted assets of $29 million. Core Equity Tier 1 (CET1) capital is $1,350,000, additional Tier I capital is $550,000, and Tier Il capital is $438,000. The current value of the CET1 ratio is 4.66 percent, the Tier I ratio is 6.55 percent, and the total capital ratio is 8.06 percent. Calculate the new value of CET1, Tier I, and total capital ratios for the following transactions. a. The bank issues $2.9 million in nonqualifying perpetual preferred stock and purchases general obligation municipal bonds. % % % CET1 ratio Tier I ratio Total capital ratioarrow_forward
- 8. Company cost of capital (S9.2) Binomial Tree Farm's financing includes $5 million of bank loans. Its common equity is shown in Binomial's Annual Report at $6.67 million. It has 500,000 shares of common stock outstanding, which trade on the Wichita Stock Exchange at $18 per share. What debt ratio should Binomial use to calculate its company cost of capital or asset beta? Explain.arrow_forwardA company has a current value of operations of $800 million,and it holds $100 million in short-term investments. If thecompany has $400 million in debt and has 10 million commonshares outstanding, what is the estimated price per share?($50.00arrow_forwardRian Corporation is currently working without using debt. The estimated operating profit per year is $16.065,180.00 while the equity capitalization rate (ke) is 18% pa. In the coming year, Rian is considering replacing some of his shares with a debt of $50 million, with an interest rate of 15% per annum. Question: a. Calculate the value of own capital capitalization (CS), the total capitalization value of the company (V), and the overall capitalization rate (ko) using the Net Income Approach. b. Calculate the amount of equity capitalized value, total capitalization value of the company, and overall capitalization rate using the traditional approach, if additional debt causes the equity capitalization rate (ke) to increase to 20%. c. Draw a graph of the two approaches.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Financial leverage explained; Author: The Finance story teller;https://www.youtube.com/watch?v=GESzfA9odgE;License: Standard YouTube License, CC-BY