Intermediate Financial Management 14th Edition Eugene F Brigham, Phillip R Daves - Solutions

Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the purchase price, or it can lease the machinery. Assume that the following facts apply.(1) The machinery falls into the MACRS 3-year class.(2) Under either the lease or the
Air Tampa has just been incorporated, and its board of directors is grappling with the question of optimal capital structure. The company plans to offer commuter air services between Tampa and smaller surrounding cities. Air Tampa believes it would have the same business risk as Jaxair, which is an
The APV model, the MM model, and the Hamada equation have different formulas for calculating the unlevered cost of equity, rsU. Why is that, and which formula should you use?
A company’s most recent free cash flow to equity was $100 and is expected to grow at 5% thereafter. The company’s cost of equity is 10%. Its WACC is 8.72%. What is its current intrinsic value?
Companies U and L are identical in every respect except that U is unlevered while L has $10 million of 5% bonds outstanding. Assume: (1) All of the MM assumptions are met.(2) Both firms are subject to a 25% federal-plus-state corporate tax rate.(3) EBIT is $2 million.(4) The unlevered cost of
Nodebt, Inc., has zero debt (wd = 0). It is considering restructuring to increase its percentage of debt to wd 5 40%. Its beta is 0.8, the riskfree rate is 6%, the market risk premium is 7%, and if it restructures, the required return on its debt will be 9%. Nodebt’s tax rate is 25%. a.
Somedebt, Inc., has a little debt (wd 5 20%) with required return 7%. It is considering restructuring to increase its percentage of debt to wd 5 40%. Its beta is 0.8, the risk-free rate is 6%, the market risk premium is 7%, and if it restructures, the required return on its debt will be 9%.
Sheldon Corporation projects the following free cash flows (FCFs) and interest expenses for the next 3 years, after which FCF and interest expenses are expected to grow at a constant 7% rate. Sheldon’s unlevered cost of equity is 13%; its tax rate is 25%.a. What is Sheldon’s unlevered horizon
Schwarzentraub Corporation’s expected free cash flow for the year is $500,000; in the future, free cash flow is expected to grow at a rate of 8%. The company currently has no debt, and its cost of equity is 13%. Its tax rate is 25%. Suppose the firm issues $5 million of debt at a rate of 7%. Use
Start with the partial model in the file Ch17 P12 Build a Model.xlsx on the textbook’s Web site. Kasperov Corporation has an unlevered cost of equity of 12% and is taxed at a 25% rate. The 4-year forecasts of free cash flow and interest expenses are shown in the following table; free cash flow
Suppose you want to value a company and you expect that its capital structure (weights on debt and equity) will remain constant. Which valuation model (corporate valuation model, FCFE, or APV) should you use, and why? How is this answer different if the capital structure is expected to change
Assume that interest rate parity holds and that 90-day risk-free securities yield 5% in the United States and 5.3% in Germany. In the spot market, 1 euro equals $1.40. What is the 90-day forward rate? Is the 90-day forward rate trading at a premium or a discount relative to the spot rate?
Hager’s Home Repair Company, a regional hardware chain, which specializes in “do-it-yourself” materials and equipment rentals, is considering an acquisition of Lyon Lighting (LL). Doug Zona, Hager’s treasurer and your boss, has been asked to place a value on the target and he has enlisted
The Verbrugge Publishing Company’s 2021 balance sheet and income statement are as follows (in millions of dollars): Verbrugge and its creditors have agreed upon a voluntary reorganization plan. In this plan, each share of the noncallable preferred will be exchanged for 1 share of $2.40
SafeCo can issue floating-rate debt at LIBOR + 1% or fixed-rate debt at 8%, but it would prefer to use fixed-rate debt. RiskyCo can issue floating-rate debt at LIBOR + 2% or fixed-rate debt at 8.8%, but it would prefer to use floating-rate debt. Explain why both companies might be better off if
Stewart Manufacturing buys on terms of 2/10, net 30, but it has not been paying on time—it is a “slower payer” and its suppliers are getting upset. Stewart does not take discounts, and it has been paying in 50 rather than the required 30 days. Assume that the accounts payable are recorded at
Rusty Spears, CEO of Rusty’s Renovations, a custom building and repair company, is preparing documentation for a line of credit request from his commercial banker. Among the required documents is a detailed sales forecast for parts of 2022 and 2023: Estimates obtained from the credit and
Payne Products had $1.6 million in sales revenues in the most recent year and expects sales growth to be 25% this year. Payne would like to determine the effect of various current assets policies on its financial performance. Payne has $1 million of fixed assets and intends to keep its debt ratio
Captain Whitman Ship Supplies offers terms of 3/15, net 45.a. If a purchaser takes the discount and pays on the 10th day, what is the nominal cost of trade credit?b. Now suppose a purchaser actually pays on the 20th day but still takes the discount. What is the actual nominal cost of the trade
The Bahbat Carpet Company has grown rapidly during the past 5 years. Recently, its commercial bank urged the company to consider increasing its permanent financing. Its bank loan under a line of credit has risen to $250,000, carrying an 8% interest rate. Bahbat has been 30 to 60 days late in paying
Start with the partial model in the file Ch19 P08 Build a Model.xlsx on the textbook’s Web site. As part of its overall plant modernization and cost reduction program, Western Fabrics’ management has decided to install a new automated weaving loom. In the capital budgeting analysis of this
Dreebyshaw Industries must set its investment and dividend policies for the coming year. It has three independent projects from which to choose, each of which requires a $3 million investment. These projects have different levels of risk, and therefore different costs of capital. Their projected
Wansley Lumber is considering the purchase of a paper company, which would require an initial investment of $300 million. Wansley estimates that the paper company would provide net cash flows of $40 million at the end of each of the next 20 years. The cost of capital for the paper company is
Boehm Corporation has had stable earnings growth of 8% a year for the past 10 years, and in 2021 Boehm paid dividends of $4 million on net income of $10 million. However, net income is expected to grow by 28% in 2022, and Boehm plans to invest $7.5 million in a plant expansion. This one-time
Start with the partial model in the file Ch15 P13 Build a Model.xlsx on the textbook’s Web site. J. Clark Inc. (JCI), a manufacturer and distributor of sports equipment, has grown until it has become a stable, mature company. Now JCI is planning its first distribution to shareholders. (See the
Assume you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant chain. The company’s EBIT was $120 million last year and is not expected to grow. PizzaPalace is in the 25% stateplus-federal tax bracket, the risk-free rate is 6 percent, and the market risk premium
What is the trade-off theory of capital structure? How does it differ from MM’s theory?
The Rivoli Company has no debt outstanding, and its financial position is given by the following data: a. What is Rivoli’s intrinsic value of operations (i.e., its unlevered value)? What is its intrinsic stock price? Its earnings per share? b. Rivoli is considering selling bonds and
Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 8%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero-growth firm and pays out all of its earnings as dividends.

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