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Sedaia [141]
2 years ago
15

Suppose Luther Industries is considering divesting one of its product lines. The product line is expected to generate free cash

flows of $2 million per year, growing at a rate of 3% per year. Luther has an equity cost of capital of 10%, a debt cost of capital of 7%, a marginal tax rate of 35%, and a debt-equity ratio of 2. This product line is of average risk and Luther plans to maintain a constant debt-equity ratio. The unlevered value of Luther's Product Line is closest to:
Business
1 answer:
erik [133]2 years ago
6 0

Answer:

$61,127,596

Explanation:

formula for the value of operations =

[Free Cash Flows (1 + growth rate)] / (WACC - growth rate)

where

We have D/E = 2 or D=2*E  (debt-equity ratio)

Tax = T=35%,

Ks=10%,

Kd =7%

Kd*(1-T) = 7%*(1-35%) = 4.55%

WACC = Kd*(1-T)*(D/(D+E)) + Ks*(E/(D+E))

WACC = 4.55%*(2E/3E) + 10%*(E/3E)

WACC = 4.55%*(2/3) + 10%*(1/3)

WACC = 6.37%

Value of Ops = 2000000*(1+3%)/(6.37%-3%)

Value of Ops = $61,127,596

to be profitable it must receive for the product line $61,127,596

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Mullineaux Corporation has a target capital structure of 64 percent common stock, 9 percent preferred stock, and 27 percent debt
nlexa [21]

Answer:

10.02%

Explanation:

The computation of the WACC is shown below. The formula of WACC is shown below:

= (Weightage of debt × cost of debt)  + (Weightage of preferred stock) × (cost of preferred stock) + (Weightage of  common stock) × (cost of common stock)

= 27% × 7.6% × (1 - 0.40) + 9% × 5.9% + 64% × 12.9%

= 2.052% × (1 - 0.40) + 0.531% + 8.256%

= 10.02%

8 0
2 years ago
Discuss the current state of the US economy and its impact on the job market. Also discuss how economic trends such as globaliza
jonny [76]
<span>The current state of the US economy is in growing strength with respects to the former cabinet. Globalization is affecting the US economy. Primarily through technology and social feeds. We are in the information Era. As far as jobs, off shoring in our economy was once always a viable option. Now that we have a president who insists on the "American Made" branding has emboldened some companies to minimize their operations abroad and increase facilities at home. I work on software, and my job requires me to be in a wireless world. It is hard to compete with companies who hire third party IT hosts in other countries because it is simply cheaper. But, I find other means for work.</span>
6 0
2 years ago
Compuvac Company has just completed its first pass forecast using the projected balance sheet method. need a total of 13,050,00
aivan3 [116]

Answer:

Incremental change in AFB would be $ 480,000

Explanation:

(a) Debt = $ 4,000,000

Interest on debt = 10%  

Therefore, Interest outgo on debt = 10% of Debt

=10% of $4,000,000

=$ 400,000

(b) Dividend payable = $0.48 per share(given)

No of shares = 500,000 (given)

Therefore, Outgo on account of dividend = $ 0.48 /share * no of shares

=$0.48 * 500,000

=$240,000

(c) Given, that tax in second would be $160,000 lesser. i.e., outgo would actually be lesser to that extent

Therefore, incremental AFN = (a)+(b)-(c) = $ 400,000 + $ 240,000 - $160,000 = $480,000

Incremental change in AFB would be $480,000

6 0
2 years ago
An owner can lease her building for $120,000 per year for three years. The explicit cost of maintaining the building is $40,000,
Sergeeva-Olga [200]

A) Accounting profits dont take implicit costs into account, only "real" or quantifiable costs. Thus the present value of a 120,000 lease at 5% for three years with explicit costs of $40,000 maintenance is: 

PV = [ FV/(1+r)^n ] - (Explicit Cost) 

PV = 120000/(1.05^3) - (40000*3) B) same thing but add implicit costs ... 

PV = 120000/(1.05^3) - (40000*3) - (55000*3)

3 0
2 years ago
Read 2 more answers
Carol has worked for Centrum Springs, Inc., for many years and has now been given the opportunity to advance in the company. Her
Sholpan [36]

The correct answer would be, Planning, Organizing, Leading and Controlling.

Refer to Centrum Springs, Inc. when Riley learns all that it takes to be a manager, he will be involved in Planning, Organizing, Leading and Controlling

Explanation:

A person who is being considered for the position of a manager, must be competent in these four functions of management. The four functions of management are:

  • Planning
  • Organizing
  • Leading and
  • Controlling

These four functions of management are interconnected and the other one starts after the completion of one function.

So when Riley learns all that it takes to be a manager, then he will be involved in these functions of management, where he will make plans for the growth and profitability of the organization, then he will organize according to those plan, then he will lead others to work towards the plan and finally he will have to do the controlling process to evaluate the outcomes of each implemented plan.

Learn more about functions of management at:

brainly.com/question/13542453

#LearnWithBrainly

5 0
2 years ago
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