Good afternoon, I need someone to complete the following set of Finance / Accounting problems for me using 100% correct solutions by tomorrow Monday at 2:00 pm EST.
finance_homework___3.docx
Unformatted Attachment Preview
INTRO TO FINANCE
Homework III
I
For purposes of the first three questions, use the following (copied from the “Time Value of
Money” handout I posted on BlackBoard):
Money market instruments in the U.S. are issued with less than 1 year to maturity. They
pay simple interest. This applies as well to bank loans and deposits. In these cases, the
interest rate, r, in the simple interest formula is multiplied by the fraction of the year
the investment or bank deposit is held. In the U.S., a 360-day year is assumed for the
fraction denominator:
100 x (1 + r x days in investment period/360)
A company borrows $5 million from a bank for two weeks at 3%. How much interest is owed?
II
A company borrows $5 million from a bank for six months at 4% beginning October 5. How
much interest is owed?
III
Suppose the borrowing in question II represented a drawdown from a credit line of $7,500,000.
The bank charges a quarter% for any unused line. In the second half of the year, the company
borrowed an additional $1 million. How much does the company owe the bank for the year?
IV
Rutgers Rotisserie begins the year with:
$100,000 in owners’ equity; $50,000 million in a bank loan
$60,000 equipment; $25,000 material; $25,000 inventory; $40,000 cash
During the year it earns $20,000 in profits after taxes.
Display the new balance sheet at the end of the year (beginning of next year) and calculate the
new leverage ratio if RR:
a) distributes 50% of profits as dividends; retains the remaining in cash
b) pays no dividends, retains the entire amount in cash
c) pays no dividends, uses profits to purchase equipment
d) pays no dividends, uses profits to repay part of the bank loan
V
ABC Corporation experienced the following in 2015:
Revenue
$500,000
Variable cost $225,000
Overhead
$40,000
Interest payment
$50,000
Depreciation $18,000
Profits tax rate
20%
What was its coverage ratio (using EBITD) for the year?
How does the coverage ratio change if the tax rate is 30%?
VI
Truly Magnificent Shoe Company had the following balance sheet at the beginning of 2015:
$5 million in owners’ equity; 2 million in debt
$2 million equipment; $2.5 million material; $2.5 million cash
It manufactures and sells 105,000 pairs of truly magnificent shoes at $75/pair.
However, one customer who bought 5,000 pairs, purchased on credit, to be paid in 2016.
Variable costs are $60/pair
Rent $600,000
Interest payment $125,000
TMSC distributes 40% of after-tax profits in dividends.
“Follow the Cash” to show the net change in cash position at year end.
VII
XYZ Company begins 2016 with $1 million in owners’ equity, $550,000 in debt. It has 20,000
shares outstanding.
a) What are the leverage ratio and book value per share (BV/share)? If XYZ earns $220,000
after taxes this year, what are ROE and EPS (earnings-per-share)?
b) Suppose XYZ retains all the profits. What are the new leverage ratio and BV/share? If it
earns the same amount in 2017, what are ROE and EPS?
c) Instead of b), suppose XYZ pays out all 2016 profits as dividends. But it issues 4,400
additional shares at $50/share. What are the new leverage ratio and BV/share? If it earns
the same amount in 2017, what are ROE and EPS?
…
Purchase answer to see full
attachment
Recent Comments