For questions 14 and 15.
Donegal, Inc., has decided to use EVA to evaluate its
performance....
For questions 14 and 15.
Donegal, Inc., has decided to use EVA to evaluate its
performance.
Last year, Donegal had after-tax operating income of $900,000.
Three sources of financing were used by the company: $2 million of
mortgage bonds paying 9 percent interest, $3 million of unsecured
bonds paying 11 percent interest, and $10 million in common stock,
which was considered to be relatively more risky than other stocks,
and had a risk premium of 8 percent. Donegal, Inc., pays...
Sheila McGrave, a well-known equity analyst for the
pharmaceutical industry, has gathered data for Medsonic, Inc.,...
Sheila McGrave, a well-known equity analyst for the
pharmaceutical industry, has gathered data for Medsonic, Inc., and
it is presented in Table 1 below.
Table 1: Data for Medsonic, Inc.
Income statement:
Sales
$7,200,000
- Cash operating expenses
-6,000,000
- Research and development expenses
-250,000
- Depreciation expense
-230,000
EBIT
$720,000
-Interest expense
-120,000
EBT
$600,000
-Taxes
-240,000
Net income
$360,000
Other data:
Current liabilities-non-interest bearing
$1,000,000
Current liabilities-interest bearing
$500,000
Long-term debt
$1,500,000
Common equity
$3,000,000
Total assets
$6,000,000...
Company reports the following information:
Current
liabilities &
Company reports the following information:
Current
liabilities
$40,000
Adjusted after tax operating
income
$11,400
Total
assets
$215,000
Weighted average cost of capital
(WACC) 12%
The adjusted figures reflect EVA
adjustments used by Kendall & Partners. What is the EVA for
Bellingham Division?
a. ($18,600)
b. ($12,840)
c. ($9,600)
d. ($6,600)
Refer to the data in the preceding exercise for Golden Gate
Construction Associates. The company has...
Refer to the data in the preceding exercise for Golden Gate
Construction Associates. The company has two divisions: the real
estate division and the construction division. The divisions’ total
assets, current liabilities, and before-tax operating income for
the most recent year are as follows: DivisionTotal AssetsCurrent
LiabilitiesBefore-Tax Operating IncomeReal estate
.......................................................................$100,000,000$6,000,000$20,000,000Construction
....................................................................60,000,0004,000,00018,000,000
Required: Calculate the economic value added (EVA) for each of
Golden Gate Construction Associ-ates’ divisions. (You will need to
use the weighted-average cost of capital, which was computed...
The firm’s tax rate is 35%. The company has $2,000,000 in annual
sales, and annual fixed...
The firm’s tax rate is 35%. The company has $2,000,000 in annual
sales, and annual fixed expenses of $1,100,000 and $500,000 in
variable expenses. There was an initial investment in the firm of
$1,500,000, which will be depreciated straight-line over 10 years.
The project is expected to last 10 years. The firm has a Capital
Structure as follows: 1. The market value of the bonds is
$2,000,000. 2. The market value of the Preferred Stock is
$1,000,000. 3. The market...
Sapsora Company uses ROI to measure the performance of its
operating divisions and to reward division...
Sapsora Company uses ROI to measure the performance of its
operating divisions and to reward division managers. A summary of
the annual reports from two divisions is shown as follows. The
company’s weighted-average cost of capital is 12 percent.
Division A
Division B
Total assets
$
6,000,000
$
8,750,000
Current liabilities
$
500,000
$
1,750,000
After-tax operating income
$
1,000,000
$
1,180,000
ROI
25
%
14
%
a. Which division is more profitable in
absolute dollars?
b. Compute the EVA...
The XXX Company has a marginal tax rate of 40%. The company can
issue new bonds...
The XXX Company has a marginal tax rate of 40%. The company can
issue new bonds at par that would provide a 8.5% YTM. The firm’s
beta is 0.7, the T-bill rate is 5%, and the market return is 12%.
The firm’s long-term debt currently sells at par value for $3,000.
The firm has 700 shares of common stock outstanding that sell for
$10 per share. What is XXX’s capital structure based on market
weights?
a. 60% in debt, 40%...
The Alexander Company reported the following income statement
for 2016:
Sales $15,000,000
Less: Operating expenses
Wages,...
The Alexander Company reported the following income statement
for 2016:
Sales $15,000,000
Less: Operating expenses
Wages, salaries, benefits $6,000,000
Raw materials 3,000,000
Depreciation 1,500,000
General, selling, and administrative expenses 1,500,000
Total operating expenses 12,000,000
Earnings before interest and taxes (EBIT) $3,000,000
Less: Interest expense 750,000
Earnings before taxes $2,250,000
Less: Income taxes 1,000,000
Earnings after taxes $1,250,000
Less: Preferred dividends 250,000
Earnings available to common stockholders $1,000,000
Earnings per share—250,000 shares outstanding $4.00
Assume that all depreciation and 75 percent...
Casey Motors recently reported the following information:
Net income = $750,000.
Tax rate = 40%.
Interest...
Casey Motors recently reported the following information:
Net income = $750,000.
Tax rate = 40%.
Interest expense = $200,000.
Total invested capital employed = $9 million.
After-tax cost of capital = 10%.
What is the company's EVA?
a. -$30,000
b. -$35,100
c. -$29,400
d. -$32,100
e. -$34,500
rown Office Supplies recently reported $18,000 of sales, $8,250
of operating costs other than depreciation, and $1,750 of
depreciation. It had $9,000 of bonds outstanding that carry a 7.0%
interest rate, and its...
Assume zero tax rate. On March 31, 2019, Corn, Inc. completed
the acquisition of 100% of...
Assume zero tax rate. On March 31, 2019, Corn, Inc. completed
the acquisition of 100% of Peas Corporation for $80 million paid in
the form of a note due in 5 years with an interest rate of 6% per
year. Assume 6% is a fair rate of interest. The following is
historical and fair values of the assets and liabilities of Peas
immediately prior to the acquisition:
Book Value
Fair Value
Cash
$5,000,000
$5,000,000
Accounts Receivable
$4,000,000
$4,000,000
Inventory
$11,000,000...